U.S. stocks closed modestly lower Wednesday after the Federal Reserve delivered an outsized rate cut, its first in more than four years, amid what it said were worrying conditions in the job market but a steady overall economy.
The Fed slashed its benchmark lending rate by 50 basis points, or 0.5%, to a range of between 4.75% and 5%, a move that was widely anticipate by traders on Wall Street but which still appeared to catch broader markets by surprise.
Fed officials also trimmed their current-year growth and inflation forecasts, while nudging their estimates for headline unemployment notably higher, as Chairman Jerome Powell cautioned that a cooling job market would keep the central bank's attention into the end of the year and beyond.
On Wall Street, the S&P 500 was marked 16.3 points, or 0.29% by the end of the session, with the Nasdaq falling 0.31% and the Dow giving back 103 points from last night's close.
Treasury yields and the dollar, however, nudged higher, with 2-year note yields rising 2 basis points to 3.636% and 10-year yields hitting a one-week high of 3.711%.
"The key takeaway from today's move, and one that will resonate through the financial system for the coming months, is that the Federal Reserve will be lowering interest rates persistently for the next two years," said Rick Rieder, chief investment officer of global fixed income at BlackRock.
"As interest rates move lower, fixed income assets will benefit, but not necessarily in a straight line ... today's rate cut doesn't provide the answer to questions surrounding the economy, the upcoming election or how geopolitics will play out from here," he added.
Global Central Bank Update:
— Charlie Bilello (@charliebilello) September 18, 2024
-The Fed cut rates for the first time since 2020, 50 bps move down to 4.75-5.00%.
-Indonesia cut rates for the first time since 2021, 25 bps move down to 6.00%.https://t.co/l5IYmkeySJ pic.twitter.com/c0hPmgBHZQ
Updated at 3:28 PM EDT
Still thinking ...
Stocks are flitting in and out of positive territory into the final half hour of trading, with the S&P 500 last up 0.15% on the session and the Dow essentially unchanged from last night's close.
"While we all can debate the warranted speed of rate cuts out of the gate, the reality is the direction of travel for policy rates is lower and getting to a more neutral stance on rates should arguably be the finish line of this race," said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis.
"The track record from this Fed has shown they haven’t historically been the fastest out of the gate, but they have exhibited the ability to dial up the pace when deemed necessary," he added. "Against a backdrop where the strength of the economy has been difficult to gauge, the move to cut 50 basis points of the gate from the Fed seems to be appropriate as the pace of rate cuts on the path to neutral can be adjusted accordingly."
🔸PREDICTION MARKETS SEE SIGNIFICANTLY MORE RATE CUTS THIS YEAR THAN FED ESTIMATEShttps://t.co/Eg7zD6I8CQ pic.twitter.com/BKABLUbFmS
— *Walter Bloomberg (@DeItaone) September 18, 2024
Updated at 2:54 PM EDT
Soft focus lens
Bond and currency markets are reacting with puzzlement to the Fed's 50 basis point rate cut, with modestly higher short-term yields and a pullback in the dollar.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.62% lower at 100.272, a move that reflects bets on at least two more rate cuts between now and the end of the year.
Benchmark 2-year Treasury note yields, meanwhile, was last trading at 3.592%, with 10-year notes at 3.671%, in what could be indicative of bets that the Fed can engineer a 'soft landing' for the world's biggest economy that tames inflation without inducing recession.
Shout out to the Federal Reserve for managing the inflation crisis (caused by COVID and supply chain issues) excellently, giving us a soft landing. And shout out Joe Biden for taking all the blame, even though none of it was his fault. USA 🇺🇸 https://t.co/A02T0iMr88
— Pisco (@PiscoLitty) September 18, 2024
Updated at 2:36 PM EDT
Li'l Dots
The Fed's new Summary of Economic Projections, better-known as the Dot Plots, suggest an end-of-year spike in the headline unemployment rate that officials see holding into 2025 and beyond.
The policy committee's growth outlook, however, was largely unchanged, and inflation pressures are expected to ease in steady fashion over the next two years.
"Powell doesn’t want to get behind the curve again, especially with the Europeans cutting," said David Russell, global head of market strategy at TradeStation.
"The current rate is way above CPI, so there’s no need to delay. Jobs have been trending lower along with energy prices, which probably made this decision easier," he added. "Even if a slowdown isn’t clearly happening, the Fed thinks it’s a bigger risk than inflation returning."
Updated at 2:15 PM EDT
Big Move
The Fed said it has gained "greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance," according to the statement that followed their 50 basis point rate cut, which takes the Fed Funds rate to between 4.75 and 5%.
"The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate," the statement added.
U.S. stocks extended gains following the Fed statement and into Chairman Powell's news conference that begins at 2:30 pm Eastern time, with the S&P 500 last marked 35 points, or 0.6% higher on the session.
The tech-focused Nasdaq, meanwhile, rose 144 points, or 0.81% while the Dow was last marked 205 points to the upside.
Benchmark 10-year Treasury note yields were last marked 1 basis point higher on the session at 3.666%. Rate-sensitive 2-year note yields, meanwhile, were little-changed from prior to the statement at 3.592%.
FOMC Policy Decision: Fed embarks on rate cutting cycle pointing to a potential destination of 2.9%. Fed cuts by 50bps to a range between 4.75% & 5% and the dot plot implies possibility of a further 100bps cuts through the end of the year to 4.4% and 3.4% in 2025.
— Joseph Brusuelas (@joebrusuelas) September 18, 2024
Updated at 1:05 PM EDT
Coin flip
Stocks are holding onto modest gains heading into the final hour prior to the Fed's September rate decision in Washington, with the S&P 500 rising 6 points, or 0.11% and the Nasdaq up 23 points, or 0.13%
Trading in the interest rate markets, meanwhile, suggests a paring of bets on an outsized Fed rate cut, with the CME Group's FedWatch essentially indicating a coin flip heading into the 2:00 pm Eastern time announcement.
Updated at 11:56 AM EDT
Game stopped?
GameStop (GME) CEO Ryan Cohen has agreed to pay a near $1 million penalty tied to the purchase of Wells Fargo WFC shares.
The Federal Trade Commission said Cohen acquired around 520,000 Wells Fargo shares, but didn't file forms to either the FTC or the Department of Justice required under the Hart-Scott-Rodino Act.
"When acquiring the Wells Fargo shares Cohen intended to influence Wells Fargo’s business decisions as evidenced by Cohen’s emails when he advocated for a board seat," the complaint read. "After acquiring the shares, Cohen proceeded to have periodic communications with Wells Fargo’s leadership regarding suggestions to improve Wells Fargo’s business and to advocate for a potential board seat."
Cohen will pay a fine of $985,320, the FTC said.
🔵 FTC SAYS GAMESTOP CEO COHEN TO PAY NEARLY $1 MILLION PENALTY
— PiQ (@PiQSuite) September 18, 2024
Full Story → https://t.co/yu65AIfwlp
(Reuters) - The U.S. Federal Trade Commission said on Wednesday that Ryan Cohen, managing partner of RC Ventures LLC and Gamestop CEO, would pay a nearly $1 million penalty to… pic.twitter.com/Pg3Oi7xEoC
Updated at 9:37 AM EDT
Soft open
The S&P 500 was marked 2 points, or 0.04% lower in the opening minutes of trading, with the Nasdaq up 2 points and the Dow down 30 points. The mid-cap Russell 2000 was up 2 points, or 0.11%.
Benchmark 10-year note yields were marked at 3.681% while 2-year notes were trading at 3.632%.
S&P 500 Opening Bell Heatmap (Sept. 18, 2024)$SPY -0.01%🟥$QQQ +0.22%🟩$DJI -0.16%🟥$IWM -0.10%🟥 pic.twitter.com/gxO0IFPPHT
— Wall St Engine (@wallstengine) September 18, 2024
Updated at 8:57 AM EDT
X Marks the spot
U.S. Steel (X) shares jumped higher in premarket trading following a report that suggested a probe into the security concerns tied to Japan-based Nippon Steel's $15 billion takeover may be delayed.
Reuters reported that the the Committee on Foreign Investment in the United States, known as CFIUS, has allowed for both parties to refile their application for approval, a move that likely means a final decision won't come until after the November presidential elections.
US Steel shares were marked 3.5% higher in premarket trading to indicate an opening bell price of $37.50 each. Nippon has said it will pay $55 per share for the group.
NEWS: CFIUS has granted a defacto extension in the Nippon Steel purchase of US Steel, likely pushing a decision past the election.
— Josh Wingrove (@josh_wingrove) September 17, 2024
Stock Market Today
Stocks ended mixed on Tuesday as investors watched Treasury yields nudge higher following a stronger-than-expected reading for August retail sales, which was paired with a rebound in industrial production.
Those moves added pressure to bets that the Fed is likely to cut its benchmark lending rate by a half a point today, its first cut since early 2020 and its first rate move in any direction since July of last year.
Traders are still betting on a big move today, however, even as the Atlanta Fed's GDPNow forecasting tool was upgraded to a current-quarter growth rate of 3% following yesterday's retail data, and headline inflation eased to a three-year low of 2.5% last month.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.14% lower in overnight dealing ahead of today's rate decision at 2 pm Eastern time.
Benchmark Treasury bond yields, however, were inching higher, with 2-year notes at 3.617% and 10-year notes at 3.666%, perhaps reflecting some earlier overshoot in the segment of the market that is now looking to a smaller Fed cut later this afternoon.
"[Fed policy makers] have several reasons for go slow, including the continued robust rates of growth in GDP and consumers’ spending; the recent loosening of financial conditions and uncertainty over the degree to which some of the recent slowing in month-to-month increases in consumer prices is due to residual seasonality," said Ian Shepherdson of Pantheon Macroeconomics.
Related: This Fed news may be more important than a rate cut this week
At present, however, the CME Group's FedWatch pegs the odds of a 50 basis point move at 63%, with the 25-basis-point cut trading at 37%.
Fed officials will also publish fresh growth and inflation forecasts for the next two years, known formally as the Summary of Economic Projections but colloquially as the Dot Plots, that will inform markets on the direction of rate moves heading into 2025 and beyond.
On September 17, the #GDPNow model nowcast of real GDP growth in Q3 2024 is 3.0%: https://t.co/T7FoDdgYos #ATLFedResearch
— Atlanta Fed (@AtlantaFed) September 17, 2024
Download our EconomyNow app or go to our website for the latest GDPNow nowcast: https://t.co/NOSwMl7Jms pic.twitter.com/hoBanR6kg8
Markets suggest the Federal Funds Rate, which currently sits at 5.375%, will fall to around 3.375% over the next two years, a path that would require two full percentage points of rate cuts over the next 24 months.
Rate bets derived from the FedWatch tool, however, suggest traders are looking for the Fed to reach that target rate by early spring.
The Fed itself, in the Summary of Economic Projections it published in June, estimated a Federal Funds Rate of 4.1% for next year, with a 3.1% forecast penciled in for 2026.
Stocks on Wall Street are also in wait-and-see mode, with futures tied to the S&P 500 suggesting a modest 7 point gain and those linked to the Dow Jones Industrial Average priced for a 55 point bump.
The tech-focused Nasdaq, meanwhile, is called 35 points higher at the start of trading.
More Wall Street Analysts:
- Analyst says Intel should drop a key business to survive
- Analysts adjust Bookings.com stock price target on travel market
- Analysts place bets on Las Vegas strip casino stocks
In overseas markets, stocks were largely on the back foot ahead of today's Fed decision and policy meetings from both the Bank of England and the Bank of Japan on Thursday.
Europe's regionwide Stoxx 600 was marked 0.34% lower in Frankfurt, with Britain's FTSE 100 falling 0.58% in London following some in-line inflation data for August.
Overnight in Asia, a weaker yen helped Japan's Nikkei 225 rise 0.49% on the session, while the regional MSCI ex-Japan benchmark slipped 0.17% into the close of trading.
Related: Veteran fund manager sees world of pain coming for stocks
