U.S. stocks experienced a decline on Wednesday following the expected decision by the U.S. Federal Reserve to keep key interest rates unchanged. The Fed also revised its economic projections higher but warned that the battle against inflation was not yet over. This led to a retreat in all three major U.S. stock indexes, with megacap stocks like Microsoft Corp, Apple Inc, and Nvidia Corp causing the Nasdaq to decline the most.
The Fed’s announcement included its Summary Economic Projections (SEP) and dot plot, which indicated an additional 25 basis point rate hike this year, reaching a peak in the 5.50%-5.75% range. The SEP projections also predicted 50 basis points of rate cuts for next year.
Ryan Detrick, the chief market strategist at Carson Group, described the market reaction as “your standard Fed day volatility” and stated that the markets took the news in stride. He also expressed relief that the anticipated event was now behind them.
The updated projections from the Fed foresee the Fed funds target rate gradually decreasing to 5.1% by the end of next year and 3.9% by the end of 2025. Despite the Fed’s tightening measures since March, core inflation has been slow to reach the central bank’s 2% target.
Fed Chairman Jerome Powell, during the subsequent press conference, tempered the optimistic economic projections with a warning that inflation still had a long way to go before reaching the target. Detrick noted that the Fed’s acknowledgment of the strength in the economy reduced expectations for rate cuts next year.
As a result of the Fed’s decision, the Dow Jones Industrial Average fell by 0.22%, the S&P 500 lost 0.94%, and the Nasdaq Composite dropped 1.53%. The communication services and technology sectors of the S&P 500 experienced the largest percentage losses.
In other market news, marketing automation company Klaviyo had a successful debut on the New York Stock Exchange, with its stock advancing 9.2%. This followed recent IPOs by Arm Holdings and Maplebear Inc. Detrick saw this as a positive sign that confidence was returning and that things were moving closer to normal in the business cycle.
Maplebear experienced a 10.7% decline, while Arm Holdings was down 4.1%. Pinterest, on the other hand, saw a 3.1% increase after announcing a share buyback of up to $1 billion. Coty also gained 4.4% after raising its annual core sales forecast.
Overall, declining issues outnumbered advancing ones on the NYSE and Nasdaq. The S&P 500 and Nasdaq Composite recorded new highs and lows. The volume on U.S. exchanges was slightly lower than the average for the last 20 trading days.
In conclusion, the U.S. stock market experienced a decline following the Fed’s decision to keep interest rates unchanged. The revised economic projections and warnings about inflation contributed to the market reaction. However, there were also positive developments, such as successful IPOs and companies raising their sales forecasts.
