US close: Stocks fall, markets choppy as Fed slashes interest rates by 50bp

US stock markets finished a memorable day in the red on Wednesday as the Federal Reserve made its biggest cut to interest rates in 16 years.

The Fed lowered the Federal Funds Rate by 50 basis points to 4.75-5.0%, marking the first time monetary policy has been eased since March 2020.

The past week has seen increased bets that the Fed would indeed go ahead with a 50bp reduction in the Federal Funds Rate, though many still expected a more conservative 25bp cut.

"The market was right, economists were mostly wrong. The Federal Reserve started their rate-cutting cycle with a bang," said Kathleen Brooks, research director at XTB.

Markets react

Stocks initially gave a positive reaction to the decision, but gains were quickly erased, with all three Wall Street benchmark indices falling 0.3% by the close. The S&P 500 in particular was retreating after briefly hitting a new intraday record high of 5,689.75 after the news.

The dollar also swiftly dropped to its lowest levels in a year, with the dollar index touching a 52-week low of 100.22 before paring losses by the close.

In the subsequent press conference, Fed chair Jerome Powell labelled the cut as "timely" amid a solid jobs markets and the recent slowdown in inflation. Yet the economic outlook was still "uncertain", he said.

"The Fed doesn’t like to admit policy errors, but some of the decision for a larger initial cut is likely to get caught up as it found itself behind the curve by one meeting," said chief US economist Ryan Sweet from Oxford Economics. "The September decision is a preemptive strike to increase the odds that the central bank can pull off a soft landing."

Meanwhile, analysts at Berenberg said the Fed's move doesn't really change the economic outlook, especially since the central bank left its projections for economic growth over the next three years almost unchanged. "The Fed today tried to reassure observers that its big move did not reflect any substantial bad news about the economy," said Berenberg economist Salomon Fiedler.

Economic data

For those able to peel their eyes off the Fed, there was a barrage of economic data to contend with.

US mortgage applications surged 14.2% in the week ended 13 September, according to the Mortgage Bankers Association of America, marking the fourth-consecutive weekly gain. Applications to purchase a home were 5% higher, while applications to refinance a home shot up 24% week-on-week.

US housing starts jumped 9.6% in August to an annualised rate of 1.35m, according to the Census Bureau, beating market expectations for a reading of 1.31m. Housing starts rebounded from an almost 7% decline in the previous month to register the sharpest monthly increase seen in nine months.

Finally, the Census Bureau revealed building permits rose by 4.9% to 1.47m, the highest reading seen in five months and beating expectations for a print of 1.41m. Approvals of units in buildings with five units or more advanced by 8.4% to 451,000 and single-family authorisations went up by 2.8% to 967,000.

Market movers

The big mover of the day was Intuitive Machines after the Houston-based space exploration group received a $5bn contract from NASA, sending shares up 38%.

General Mills finished flat as the American processed foods giant reiterated its full-year targets. The company reported a decline in sales and profits in its first quarter.

Barclays comments were helping stocks in the retail and apparel sector: Victoria's Secret got a boost from an upgrade from 'underweight' to 'equal weight', while VF Corp was lifted from 'equal weight' to 'overweight'.

Dow Jones - Risers

Apple Inc. (AAPL) $220.69 1.80%
Walt Disney Co. (DIS) $93.58 0.78%
Walmart Inc. (WMT) $79.03 0.55%
Unitedhealth Group Inc. (UNH) $580.65 0.47%
Caterpillar Inc. (CAT) $355.12 0.40%
Chevron Corp. (CVX) $143.96 0.38%
International Business Machines Corporation (CDI) (IBM) $214.94 0.38%
Nike Inc. (NKE) $80.90 0.32%
Merck & Co. Inc. (MRK) $118.67 0.30%
Dow Chemical Co. (DOW) $51.64 0.25%

Dow Jones - Fallers

Intel Corp. (INTC) $20.77 -3.26%
American Express Co. (AXP) $262.18 -1.21%
Procter & Gamble Co. (PG) $173.92 -1.11%
Salesforce.Com Inc. (CRM) $252.36 -1.08%
Visa Inc. (V) $288.44 -1.06%
Microsoft Corp. (MSFT) $430.81 -1.00%
JP Morgan Chase & Co. (JPM) $207.53 -0.82%
Boeing Co. (BA) $155.11 -0.82%
Travelers Company Inc. (TRV) $239.75 -0.74%
McDonald's Corp. (MCD) $292.10 -0.59%

S&P 500 - Risers

Sl Green Realty Corp. (SLG) $72.04 4.09%
VF Corp. (VFC) $19.11 3.86%
Vornado Realty Trust (VNO) $38.88 3.40%
Dollar Tree Inc (DLTR) $75.67 2.95%
Monster Beverage Corp (MNST) $52.35 2.51%
Foot Locker Inc. (FL) $27.98 2.34%
Leggett & Platt Inc. (LEG) $13.15 2.09%
Comerica Inc. (CMA) $59.70 2.02%
Blackrock Inc. (BLK) $922.71 2.01%
Bath & Body Works, Inc. (BBWI) $29.71 1.89%

S&P 500 - Fallers

Resmed Inc. (RMD) $238.03 -5.12%
Avery Dennison Corp. (AVY) $209.36 -4.92%
Sysco Corp. (SYY) $74.54 -4.17%
Albemarle Corp. (ALB) $86.59 -3.60%
Intel Corp. (INTC) $20.77 -3.26%
Alaska Air Group Inc. (ALK) $39.76 -2.98%
Abbott Laboratories (ABT) $114.88 -2.75%
Carmax Inc. (KMX) $77.15 -2.75%
Chipotle Mexican Grill Inc. (CMG) $56.93 -2.68%
eBay Inc. (EBAY) $63.17 -2.64%

Nasdaq 100 - Risers

Qurate Retail Inc. (QRTEA) $0.56 8.81%
Dollar Tree Inc (DLTR) $75.67 2.95%
Monster Beverage Corp (MNST) $52.35 2.51%
Paypal Holdings Inc (PYPL) $73.12 1.88%
Apple Inc. (AAPL) $220.69 1.80%
Henry Schein Inc. (HSIC) $72.46 1.71%
Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) $402.72 1.44%
Comcast Corp. (CMCSA) $39.82 1.37%
Mercadolibre Inc. (MELI) $2,102.64 1.37%
Marriott International - Class A (MAR) $238.74 1.33%

Nasdaq 100 - Fallers

Intel Corp. (INTC) $20.77 -3.26%
T-Mobile Us, Inc. (TMUS) $196.68 -2.97%
eBay Inc. (EBAY) $63.17 -2.64%
Netflix Inc. (NFLX) $690.47 -2.33%
Western Digital Corp. (WDC) $64.41 -2.25%
Asml Holdings N.V. (ASML) $787.84 -2.22%
Nvidia Corp. (NVDA) $113.37 -1.92%
Incyte Corp. (INCY) $65.17 -1.90%
Cadence Design Systems Inc. (CDNS) $269.69 -1.86%
Intuit Inc. (INTU) $633.07 -1.82%