US benchmark equity indexes faced a significant downturn on Wednesday, while Treasury yields surged following the Federal Reserve's decision to reduce its policy rate by 25 basis points and indicate fewer cuts ahead than previously anticipated. The Nasdaq Composite fell 3.6%, closing at 19,392.7, while the S&P 500 experienced a 3% decline, finishing at 5,872.2.
The Dow Jones Industrial Average dropped 2.6% to 42,326.9, marking a troubling 10-day losing streak, the longest since 1974. All sectors finished lower, with consumer discretionary leading the decline with a drastic 4.7% drop. The Federal Open Market Committee (FOMC) has reduced interest rates to a range of 4.25% to 4.50%, aligning with market expectations.
"With today's action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive," stated Fed Chair Jerome Powell during a press conference after the FOMC meeting. "We can therefore be more cautious as we consider further adjustments to our policy rate." The FOMC's updated Summary of Economic Projections revealed that the members increased their median federal funds rate outlook for 2025 to 3.9% from 3.4% in September.
Projections for 2026 climbed to 3.4% from 2.9% and for 2027 to 3.1% from 2.9%. "While we don't think investors should rule out a January cut completely, with the Fed's preferred inflation rate stuck at 2.8% year-on-year, and expectations that (President-elect Donald Trump) will follow through on his inflationary political strategy, it makes sense that the Fed will be much more cautious come the New Year," TD Economics remarked. The US 10-year yield jumped 12.9 basis points to 4.51% on Wednesday, and the two-year rate soared 11.6 basis points to 4.35%. On the economic front, US housing starts recorded an unexpected decline last month due to a notable drop in multi-family projects, according to government data. The Mortgage Bankers Association reported a decrease in mortgage applications in the US for the first time in five weeks, attributed to rising rates across all loan types. West Texas Intermediate crude oil remained stable at $70.08 a barrel on Wednesday. In recent corporate news, electric vehicle manufacturer Tesla experienced an 8.3% drop in shares, marking the second steepest decline on both the S&P 500 and Nasdaq. Toro reported a fiscal 2025 outlook that failed to meet analysts' expectations as its fourth-quarter sales fell short, although earnings roughly aligned with market projections.
Consequently, shares of the lawn mowers and golf equipment maker slipped 4.5%. In contrast, Jabil saw a 7.3% increase in shares, becoming the top gainer on the S&P 500 after the manufacturing solutions provider revealed smaller-than-expected declines in its fiscal first-quarter results, coupled with an elevated outlook for 2025. Gold prices fell by 2.2% to settle at $2,603 per troy ounce, while silver dipped 3.6% to $29.80 per ounce..