Equities close slightly lower, trade choppy after Fed rate cut
Fed cuts rates by 50 basis points
Intuitive Machines soars after clinching NASA contract
S&P 500, Dow hit intraday records
Updated at 2:47 p.m. ET/1647 GMT
By Chuck Mikolajczak
NEW YORK, Sept 18 (Reuters) - U.S. stocks closed with modest losses onWednesday, well off their intraday highs, after theFederal Reserve cut interest rates by 50 basis points, the high side of estimates for its first cut in more than four years.
Trading was choppy. Prior to the announcement, the S&P 500 oscillated between modest gains and losses. The benchmark index rose as much as 1% after the announcement before paring gains and finally closing lower.
Citing a "greater confidence" that inflation was moving toward the central bank's 2% target, the Fed cut rates by half a percentage point, as it now focuses on keeping the labor market healthy.
"The Fed ended the pause with a bang. It’s a strong signal that they cut by 50 basis points and expect another 50 basis points of cuts this year," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
"The Fed is projecting that by front loading the cuts they can stick the landing with the unemployment rate at 4.4% and inflation dropping to target quickly."
Market expectations for the size of the rate cut had been volatile in recent days, pricing in about a 65% chance for a 25 basis point cut last week to a 57% chance for the larger 50 basis point cut earlier on Wednesday, according to CME's FedWatch Tool .
According to preliminary data, the S&P 500 .SPX lost 16.37 points, or 0.29%, to end at 5,618.21 points, while the Nasdaq Composite .IXIC lost 52.39 points, or 0.30%, to 17,575.67. The Dow Jones Industrial Average .DJI fell 97.30 points, or 0.23%, to 41,508.88.
Markets are now fully pricing in a cut of at least 25 basis points at the Fed's November meeting, with a roughly 35% chance for another 50 basis point cut.
"It’s amazing to me how even when markets get what they seemingly want, they immediately want more," said Steve Sosnick, chief market strategist at Interactive Brokers in Greenwich, Connecticut.
"It’s important to note that stocks are not rocketing ahead (at least not yet) after getting what they wanted. After 7 straight up days, a lot of good news was priced in."
Borrowing costs had been parked at their highest levels in over two decades since July 2023, when the central bank last hiked interest rates by 25 basis points to between 5.25% and 5.50% to combat inflation.
After the rate cut announcement, Fed Chair Jerome Powell said the central bank's forecast for the path of interest rates did not imply the need for urgent action.
Small cap stocks, seen as more likely to benefit from a lower interest rate environment, moved higher, with the Russell 2000 .RUT outperforming its large cap brethren. Regional banks, some of which had been stressed by higher interest rates, also gained ground, with the KBW Regional bank index .KRX closing with solid gains.
Markets have rallied this year, with all three major indexes setting record highs on prospects of lower interest rates as inflation moderated and the jobs market showed gradual signs of cooling. The Dow and S&P 500 hit intraday highs on Wednesday.
Intuitive Machines LUNR.O surgedafter clinching a $4.8 billion navigation services contract from NASA.
Fed cuts rates by 50 basis points, joins easing cycle https://reut.rs/3MPDuYx
US inflation and interest rates https://reut.rs/3Zr8y8n
Reporting by Chuck Mikolajczak, additional reporting by Carolina Mandl; Editing by David Gregorio
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