Stock Market Today: Dow’s losses fade, S&P 500 looks for momentum ahead of expected Fed rate cut

Big Tech stocks were mixed in afternoon trading Wednesday, with gains led by Apple Inc. and Tesla Inc.

Shares of the Roundhill Magnificent Seven ETF, an exchange-traded fund that holds seven closely followed so-called Big Tech stocks — Apple, Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia Corp., Tesla and Meta Platforms Inc. — were up 0.3%, according to FactSet data, at last check.

Apple and Tesla had the biggest gains in the group, each up more than 1% on Wednesday afternoon. Microsoft had the largest decline, down 0.6%, FactSet data show, at last check.

Alex McGrath, chief investment officer for NorthEnd Private Wealth in Greenville, S.C., questioned the Federal Reserve’s decision to deliver a big interest-rate cut on Wednesday at a time when the economy is still holding up.

In e-mailed reaction that included exclamation points, McGrath wrote: “50bps!!!!!! On what basis was this decision made? The market initially loved the move but has since reversed backwards.”

He added “perhaps you’ve noticed that inflation is still above target, markets are at all-time highs, real estate is still at all-time highs, employment/GDP are still good but we need to cut 50 basis points because……….well I guess we’ll let Powell fill in the blank at his presser.”

The Federal Reserve’s embarkation on an easing cycle should add a tailwind for small-cap stocks, said Lamar Villere, portfolio manager with Villere & Co., in emailed comments.

“The market adjusted to the cut immediately, and now we have 50 days to figure out if the Fed will stay aggressive or if this just pulled ahead the 25bp cut we would have gotten in November. I’d be surprised if they don’t cut at least 25bp in November to continue to unwind the inflation-fighting rate hikes,” he wrote.

“This should be particularly helpful for rate-sensitive small cap stocks, which tend to outperform more mature companies after rate cuts,” he said.

The small-cap benchmark Russell 2000 was outpacing its peers Wednesday afternoon, up 1.2% on the day versus a 0.1% rise for the S&P 500.

U.S. stocks were edging lower in the final hour of trading on Thursday as investors digested the Fed’s decision to cut interest rates by 50 basis points and Chair Jerome Powell’s ongoing post-meeting press conference.

Homebuilder stocks marched higher on Wednesday, swept up in a strong rally for interest-rate-sensitive stocks.

The SPDR S&P Homebuilders ETF was up 1.3% in recent trading, adding to a torrid rally that first took hold over the summer.

Lower interest rates are expected to boost the housing market, with companies that build new homes set to benefit.

Fed Chair Jerome Powell tells reporters that the message to the American people is that the economy is in a “good place” and the intention is to keep it there.

The Fed’s aim is to move interest rates, which were raised to battle inflation, back down over time “to a more normal level.”

The Federal Reserve chose to start its rate-cutting series “with a bang” at a time when rising real interest rates have the potential to constrain economic activity, said Jason Pride, chief of investment strategy & research at Glenmede.

“Like an aggressive boxer, the Fed came out swinging in round one of its new easing campaign with a 50-basis-point cut, but is expected to take more measured jabs through year-end,” said Pride, whose firm which manages around $45 billion in assets.

The Fed’s updated interest-rate forecast calls for an additional 50 basis points of cuts through year-end, “which could essentially mean one 25-basis-point cut each at the November and December meetings,” Pride wrote in an email.

“From there, the median dot calls for another full percentage point of rate cuts in 2025. This sort of path would leave fed funds within a reasonable range of neutral by the end of next year, but one or two additional cuts for fine-tuned calibration may be necessary thereafter.”

Zillow shares are getting a boost on Wednesday after the Federal Reserve said it planned to cut interest rates by 50 basis points, more than some were expecting.

Shares of the online real-estate company are up more than 5% in Wednesday trading after they had been roughly flat ahead of the announcement. The stock is looking to secure a five-session winning streak. Shares of Redfin are up 3%.

There seems to be growing optimism on Wall Street that a reduction in rates can help improve tough trends in housing.

Do rate cuts with the stock market at or near all-time highs provide bulls additional fuel or do they portend trouble ahead? Dow Jones Market Data ran back the tape.

They found that since 1990, the Fed has cut rates seven times while the S&P 500 was at or near (within 1%) of an all-time high (see table above). In those instances, stocks tended to rise on decision day — up 71.4% of the time with a median gain of 0.51%. Six months later, the performance is mixed, rising 57.1% of the time with a tepid median gain of 0.62%.

That’s interesting, but does it really tell investors much about the stock market’s direction over the course of the easing cycle? As countless market watchers have pointed out, it tends to depend on the economic backdrop.

High-yield bonds were rallying Wednesday after the Federal Reserve announced a large interest-rate cut of a half percentage point.

Shares of the iShares iBoxx $ High Yield Corporate Bond ETF were up 0.4%, according to FactSet data at last check. High-yield or “junk” bonds are a form of corporate debt rated below investment grade.