Stocks experienced a sharp decline on Wednesday after the Federal Reserve lowered its benchmark lending rate, as expected. However, the central bank’s indication that future rate cuts will be slower than anticipated sparked a wave of selling.
The Dow Jones Industrial Average dropped by 2.6%, losing more than 1,100 points. The S&P 500 and Nasdaq Composite also saw significant losses, falling by 3% and 3.6%, respectively. This marked the worst single-day losses for the Dow and S&P 500 since August, while the Nasdaq posted its worst performance since July. The Dow has now closed lower for 10 consecutive sessions, its longest losing streak since 1974.
Fed Announcement and Market Reaction
The stock market downturn began immediately following the Fed’s announcement and worsened during Fed Chair Jerome Powell’s press conference. Powell highlighted that inflation has remained higher than expected, while unemployment is lower than anticipated. As a result, the Fed will likely adopt a more cautious stance on future interest rate decisions.
The yield on 10-year Treasury bonds climbed to 4.51%, up from 4.39% before the announcement. This is the highest level since May and reflects expectations of where interest rates may be headed.
Hard-Hit Sectors and Stocks
The sell-off affected nearly every sector, but those most sensitive to higher interest rates saw the biggest losses. The Consumer Discretionary and Real Estate sectors of the S&P 500 fell 4.7% and 4%, respectively. The Russell 2000 index of small-cap stocks dropped 4.4%.
Large-cap tech stocks were particularly hard-hit. Nvidia (NVDA), a favorite among AI investors, had gained earlier in the day but ended 1.1% lower, continuing its slide into technical correction territory. Tesla (TSLA) dropped by 8.3%, erasing some of the post-election gains that had propelled the stock to new record highs. Other major tech stocks, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), and Broadcom (AVGO), also saw significant declines.
Shares of Micron (MU) fell by 4.3% ahead of the company’s quarterly earnings report, due after the market closed. In after-hours trading, Micron’s stock dropped an additional 15%.
Other Markets
The cryptocurrency market also faced pressure, with Bitcoin recently trading at $100,800, down from a record high of $108,300 on Tuesday. Gold futures declined by 2%, hovering around $2,600 an ounce, while crude oil futures also experienced slight losses.
The markets will likely continue to react to the Fed’s cautious outlook on interest rates as investors brace for the possibility of a prolonged period of high rates.
