(Bloomberg) — A rally that briefly drove stocks to their all-time highs bumped into a wall as the Federal Reserve signaled it’s not in a rush to ease policy after cutting rates by a half-point.
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The S&P 500 wiped out a gain of 1% as Jerome Powell cautioned against assuming big rate cuts would continue. While that’s not necessarily bad given that aggressive easing is usually associated with economic stress, traders ended up pushing equities near session lows at the 4 p.m. New York close.
“After a rally ahead of today’s Fed announcement, it wouldn’t be unreasonable for the market to pull back a bit,” said Bret Kenwell at eToro. “However, the long-term outlook remains promising. 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.”
To Ian Lyngen and Vail Hartman at BMO Capital Markets, Powell’s press conference was consistent with the magnitude of the cut and effectively communicated that officials aren’t particularly worried about any aspect of the real economy at the moment.
“It’s impressive that in the classic, ‘buy-the-rumor, sell-the-fact’ dynamic, the ‘fact’ of a 50 basis-point cut was still met by selling. Positions are being squared and the market is moving back into the mode of trading the incoming economic data with an eye to the potential influence from the presidential race.”
The S&P 500 fell 0.3%. The Nasdaq 100 dropped 0.5%. The Dow Jones Industrial Average lost 0.2%. A gauge of the “Magnificent Seven” megacaps slid 0.1%. The Russell 2000 of small firms was little changed.
Treasury 10-year yields advanced six basis points to 3.7%. The dollar rose.
In contemplating the market reaction to a half-point cut coming into the meeting, some expected the reaction to be positive because of the benefit to the economy, some expected a drop due to ‘what do they know that we don’t know’ logic, according to Mark Hackett at Nationwide.
“The lack of directional move was the least likely…
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