S&P 500 Erases 1% Gain As Powell Signals No Rush: Markets Wrap

(Bloomberg) — Stocks fell as Jerome Powell said the Federal Reserve is not in a rush to ease policy after cutting rates by a half-point.

The S&P 500 wiped out a gain of as much as 1% as Powell cautioned against assuming big rate cuts would continue. Treasury 10-year yields advanced six basis points to 3.71%. The dollar advanced.

Projections released following the Fed’s two-day meeting showed a narrow majority, 10 of 19 officials, favored lowering rates by at least an additional half-point over their two remaining 2024 meetings. Policymakers penciled in an additional percentage point of cuts in 2025, according to their median forecast.

The S&P 500 fell 0.2%. The Nasdaq 100 dropped 0.3%. The Dow Jones Industrial Average lost 0.2%. A gauge of the “Magnificent Seven” megacaps was little changed. The Russell 2000 of small firms added 0.1%.

Wall Street’s Reaction to Fed:

• Bret Kenwell at eToro:

After a rally ahead of today’s Fed announcement, it wouldn’t be unreasonable for the market to pull back a bit. However, the long-term outlook remains promising. As rate-cut bets have fluctuated throughout 2024, solid earnings growth and a strong performance from a larger number of sectors have powered the S&P 500 to new high after new high. So long as the economy holds up and inflation doesn’t roar back to life, lower rates and strong earnings growth can continue to drive stocks higher over the long term.

• Jack McIntyre at Brandywine Global:

It now will be a battle between market expectations and the Fed, with employment data — not inflation data — determining which side is right. Since this policy move was mostly telegraphed, there is no outsized move in financial markets. Now, everyone is back to data dependency.

• Giuseppe Sette at Toggle AI:

The Fed comes in strong with a large rate cut, while trying to reassure the economic outlook is strong. But the two facts don’t jive well together. Be careful, a big rate cut in a slowing environment has always preceded a market drop. It’s possible we’ve seen the peak of the market today.History shows the market peaks very close to the first rate cut. In fact, the market might be peaking just at the rate cut this time. Be wary of your equities. The times, they are a-changing.

• Krishna Guha at Evercore:

The big move out the gates takes out some insurance on the soft landing, is risk on, and should particularly benefit risky assets geared into the cycle, such as small caps, cyclicals, commodities and commodity currencies.

• Jamie Cox at Harris Financial Group:

The Fed was more aggressive than I expected, since 50 basis point cuts are historically associated with crises. I don’t consider 2% GDP, 4.2% unemployment rate, and 15% profit growth forecasts for 2025 as a crisis. As a result, I’m still skeptical of the extent of expected rate cuts next year. Lower market interest rates should help housing and employment. We look for traditional beneficiaries including small caps, value, cyclical sectors, and the equally-weighted S&P 500 Index to experience tailwinds.

• Chris Zaccarelli at Independent Advisor Alliance:

The Fed front-loaded this rate cutting cycle with a jumbo 50 bps rate cut and signaled in their statement that they are focused squarely on the labor market, saying they are “strongly committed to supporting maximum employment” Although they pay lip service to the other part of their dual mandate (i.e. inflation), clearly they have taken their eye off that ball and although inflation is much lower now than the peak we saw in 2022, igniting a stock market rally and goosing a growing economy with lower rates risks letting inflation come roaring back before this bull market ends. We believe that the market will undergo some volatility as we get closer to the election, however, lowering interest rates now – and telegraphing another 50 bps in cuts by the end of this year and a total of 150 bps more by the end of next year.

• Sameer Samana at Wells Fargo Investment Institute:

The 50bps cut should reduce the odds of a hard landing and the equity market is encouraged by that prospect, given that the economy and corporate earnings tend to move in lockstep. Consistent with the fall in hard landing odds, cyclical sectors were leaders on the day, while defensives were laggards. We see this as confirmation that equities can make further gains in 2025, led by U.S. large-caps and a combination of growth and cyclical sectors.

• Seema Shah at Principal Asset Management:

Despite the scepticism around the economic need for an aggressive 50bps cut, markets can and should only celebrate today’s move – and will continue to celebrate over coming months. We have a Fed that will go to historic lengths to avoid a hard landing. Recession, what recession?”

• Rajeev Sharma at Key Wealth:

By cutting rates by 50 basis points (rather than 25 bps), the Fed satisfied market expectations of a larger rate cut to begin a rate cutting cycle.The Fed has shown today that they are very concerned with trying to protect maximum employment and have effectively put inflation fears on the backburner.What may be even more important than the magnitude of the first rate cut of this cycle is the revision to the Fed’s dot plot, pointing to a Fed ready to be aggressive with 50 more basis points of rate cuts by year-end.

• Quincy Krosby at LPL Financial:

Equity markets applauded the Fed’s decision to initiate its easing cycle with 50 basis points. Given how much discussion has surrounded this move the announcement certainly wasn’t a surprise, however the lack of guidance by Fed officials indicates that although there was only one dissent there must have been a forceful discussion and work towards building a consensus.

• Nancy Tengler at Laffer Tengler Investments:

Stocks love a good Fed put. I think the Fed may have jumped the gun at 50 bps. The economy is slowing but still strong. My criticism of the Fed has been a myopic focus on backward looking data. This feels like that. A single weak employment report and here we are.

• Sonu Varghese at Carson Group:

A 50 bps cut to start the rate cut cycle is significant because historically, the Fed was playing catch up at the start of rate cut cycles. The message here is that the Fed’s got the labor market’s back.

• Chris Larkin at E*Trade from Morgan Stanley:

The markets got what they wanted — a big first cut by the Fed. Now we’ll see if they remain satisfied. The Fed has a well-deserved reputation for not rushing, so there’s the potential for some disappointment if it’s seen to be moving too slowly, especially if economic data continues to soften. But today they delivered.

• Ashish Shah at Goldman Sachs Asset Management:

Dialing back restrictive monetary policy could extend the US economic cycle – benefiting both bonds and risk assets – but investors should pay attention to tail risks. Yet positive catalysts in a stable economic backdrop and now falling interest rates continue to line up around the “soft-landing” narrative. Easy money from retail bank savings accounts and certificates of deposit will decline.

Investors should seek to lock in higher rates for their cash with shorter-term fixed income allocations. A focus on bond market opportunity over benchmark orientation can help drive income and total return. Across the credit spectrum, both macro and spread opportunities should attract investors. A stable economic backdrop and lower interest rates should broaden the opportunity in equities.

In small-cap stocks, a favorable valuation envelope is meeting an improved 2025 earnings outlook and creating opportunities in health care, particularly biotech, along with the software sector in technology and insurance stocks in financials.

Fed Cut Is A Positive For Credit, Market Participants Say

Corporate Highlights:

A US security panel has granted Nippon Steel Corp. permission to refile its plans to purchase United States Steel Corp., for $14.1 billion, likely pushing a decision on the politically contentious takeover past the US elections in November, according to people familiar with the matter.

• Google won a court fight with the European Union over a €1.5 billion ($1.7 billion) fine for thwarting competition for online ads, partly making up for last week’s crushing defeat in a separate judgment for abusing its monopoly powers.

• Qualcomm Inc. lost a European Union court fight over a multi million euro fine over allegations the US firm priced some chips low enough to squeeze out a smaller rival.

• T-Mobile US Inc. outlined its growth ambitions for the next three years on Wednesday, forecasting higher profit fueled by customer gains and enhanced by new technologies, including artificial intelligence.

• Elliott Investment Management still wants to replace Southwest Airlines Co. Chief Executive Officer Bob Jordan, according to a union official, suggesting changes the carrier has already promised aren’t enough to satisfy the activist shareholder.

• 23andMe Holding Co. co-founder and Chief Executive Officer Anne Wojcicki told employees that she remains committed to taking the genetic testing company private following the resignation of its independent board members.

Key events this week:

• UK rate decision, Thursday

• US Conf. Board leading index, initial jobless claims, existing home sales, Thursday

• FedEx earnings, Thursday

• Japan rate decision, Friday

• Eurozone consumer confidence, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2% as of 3:53 p.m. New York time

• The Nasdaq 100 fell 0.3%

• The Dow Jones Industrial Average fell 0.2%

• The MSCI World Index fell 0.3%

• Bloomberg Magnificent 7 Total Return Index was little changed

• The Russell 2000 Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.1% to $1.1101

• The British pound rose 0.2% to $1.3184

• The Japanese yen fell 0.1% to 142.57 per dollar

Cryptocurrencies

• Bitcoin was little changed at $60,186.26

• Ether fell 1.3% to $2,314.27

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.71%

• Germany’s 10-year yield advanced five basis points to 2.19%

• Britain’s 10-year yield advanced eight basis points to 3.85%

Commodities

• West Texas Intermediate crude fell 1.7% to $70 a barrel

• Spot gold fell 0.8% to $2,548.99 an ounce

US Fed Meeting Highlights: ‘Somewhat Elevated’ Inflation, Job Market Jitters, Flexible Future And More. Read more on Markets by NDTV Profit.