The US benchmark equity indexes experienced a downturn on Wednesday following the Federal Reserve's decision to ease its monetary policy by 50 basis points. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all posted declines of 0.3%. Specifically, the Dow closed at 41,503.1, the S&P 500 at 5,618.3, and the Nasdaq finished at 17,573.3.
Notably, the utilities sector suffered the largest decrease among the various sectors, whereas the energy sector reported a modest increase. The communication services sector remained relatively unchanged throughout the trading day. At the heart of the matter, the Federal Open Market Committee (FOMC) of the Fed reduced interest rates to a range between 4.75% and 5%, diverging from a consensus compiled by Bloomberg, which expected a rate between 5% and 5.25%.
While job growth has shown signs of slowing down, the unemployment rate remains low, although it has seen a slight uptick according to the FOMC's statement following its two-day meeting. In its updated Summary of Economic Projections (SEP), the FOMC indicated a downward revision in the median federal funds rate outlook from 2024 through 2026 alongside an increased expectation for the unemployment rate in this time frame.
Fed Chair Jerome Powell explained in a press conference that there are no indications in the SEP suggesting that policymakers are in a hurry to act. Analysts at Oxford Economics noted, "The Fed is likely worried that labor demand would weaken more, causing additional stress points in the labor market," illustrating the cautious stance being taken by the central bank. In bond markets, the yield on the US 10-year Treasury rose by 7.1 basis points, reaching 3.71%, while the two-year yield increased by four basis points to 3.63%.
This rise in yields highlights market anticipation of future interest rate movements amid the backdrop of changing economic indicators. Turning to the housing sector, US housing starts showed an increase that exceeded expectations for the previous month, buoyed by double-digit sequential gains in single-family housing projects, as reported by government data. Additionally, a surge in weekly mortgage applications was noted, triggered by a drop in the 30-year fixed mortgage rate, which fell to its lowest level since September 2022, as stated by the Mortgage Bankers Association.
Joel Kan, the association's deputy chief economist, remarked, "Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower." In the commodity markets, West Texas Intermediate crude oil prices fell by 1.6%, settling at $70.02 a barrel on Wednesday, reflecting fluctuations in the global oil market amidst changing demand and supply dynamics. In the realm of individual company performance, Intel ($INTC) witnessed a significant decrease in its shares, dropping 3.3%, marking the steepest decline within both the Dow and the Nasdaq indices and one of the worst performances on the S&P 500.
Despite this setback, the chipmaker remains committed to developing its manufacturing plants in eastern Germany, although they have announced a two-year delay due to cost-cutting measures, according to reports from Reuters. Meanwhile, Resmed ($RMD) recorded the largest decline on the S&P 500 with a drop of 5.1%, attributed to Wolfe Research's downgrade of the stock from peer perform to underperform. On a more positive note, General Motors ($GM) declared that its electric vehicle customers will have access to Tesla's ($TSLA) Supercharger network through a specific GM-approved adapter, which resulted in a 2.4% rise in GM shares, landing it among the top performers on the S&P 500.
However, Tesla shares experienced a minor decline of 0.3%. Apple ($AAPL), known for its iPhone manufacturing, emerged as the best performer on the Dow, seeing a gain of 1.8%. In precious metals, gold prices fell by 0.6%, settling at $2,576.70 per troy ounce, while silver prices dipped by 2.5%, trading at $30.21 per ounce.
As the economic landscape continues to evolve, investors remain attentive to monetary policy changes and their implications on various sectors in the financial market..