U.S. Stocks Plunge After Fed Rate Cut

(Reuters) – U.S. stocks plunged on Wednesday after the Federal Reserve cut interest rates by a quarter of a percentage point, signaling a slower pace of cuts next year.

According to preliminary data, the S&P 500 lost 2.96%, the Nasdaq Composite lost 3.62%, and the Dow Jones Industrial Average fell 2.61%.

The Dow suffered its 10th straight session of declines, marking its longest daily streak of losses since an 11-session skid in October 1974. The Dow and S&P saw their biggest one-day percentage decline since Aug. 5, while the Nasdaq experienced its largest daily decline since July 24. The small-cap Russell 2000 dropped 4.4%, its most significant drop since June 16, 2022.

Comments:

Gene Goldman, Chief Investment Officer at Cetera Investment Management, El Segundo, CA

"Investors had hoped he'd backtrack on some of the comments in the statement. But in actuality, he just doubled down. He's worried about inflation and the uncertainty. The Fed needs a slow rate cut."

"Everything in the dot plot suggested that we have higher economic growth, a stronger labor market, more inflation, fewer Fed rate cuts, and a higher neutral rate."

"Taking all this together, it's concerning for markets because markets, with high valuations, were pricing in everything being perfect. This adds more uncertainty that markets have not priced in."

"The market finally saw the news and said, 'OK, this is actually going to happen. The Fed will not cut rates as much.' None of the information that came out today was a surprise."

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, Fairfield, Connecticut

"It’s a little surprising the way the market reacted; it’s very much sell on the news. Did what Powell say make it worse? I don’t think it helped. What I saw is some selling pressure spiraling into more selling pressure, leading to an 1100 point drop."

"I don’t think it’s logical; everything that happened since the action by the Fed was largely expected. You got a cut and you have a Fed that’s on hold."

"The question I've been asked is will this last? It will last into tomorrow, but you’ll need to determine how much pressure is coming in. Is it reaction selling pressure or are people locking in profits? If it's the latter, you'll need to wait for consolidation."

"Tomorrow, I expect the market to open lower; by 10 o'clock, I hope to see buying interest. If that fails to develop, the market will continue selling off, and around lunchtime, they’ll try to stabilize. Without sufficient buying interest, stocks will continue to move lower."

Carol Schleif, Chief Market Strategist, BMO Private Wealth, Minneapolis

"I am a little surprised that markets are so surprised over the Fed conference call. Traders were hoping the Fed wouldn’t focus too much on the sticky inflation side. Chair Powell also mentioned how strong the economy remains."

Jamie Cox, Managing Partner, Harris Financial Group, Richmond

“The Fed played the role of Grinch today—taking back two rate cuts in 2025. Markets tend to overprice rate cuts, causing sharp pullbacks with even the slightest hint of a policy change. The irony is that the Fed is more likely to take further policy actions in 2025 than they expect.”

Jeff Buchbinder, Chief Equity Strategist, LPL Financial, Boston

“Our 2025 Outlook indicated that stretched positioning and sentiment left stocks vulnerable to a selloff. The big jump in inflation expectations and related bond selloff was a convenient excuse. Once support from Tech evaporated, no other groups were able to fill that gaping hole.”

Guy Lebas, Chief Fixed Income Strategist, Janney Montgomery Scott, Philadelphia

“Markets were looking for a 'dot plot' matching what we got. This morning, we had two and a half-ish cuts priced into 2025, and we got a forecast with two-ish cuts, aligning with expectations. However, the skew of the economic projections was surprising.”

“Although the median for core PCE inflation is 2.5% for 2025, the expected range is 2.5% to 2.7%, indicating higher inflation than in prior projections.”

Christopher Hodge, Chief U.S. Economist, Natixis, New York

“The more hawkish SEP shows that the Fed is serious about tackling inflation. The variance of how Trump could implement policy will complicate matters. We believe disinflationary progress will continue, but it makes sense for the Fed to slow the pace of cuts to evaluate Trump’s policies interacting with economic dynamics.”