Stocks fell and bond yields rose on Wall Street on Wednesday after the Federal Reserve lowered its key interest rate for the first time in a decade but left investors uncertain about the likelihood of further cuts.
The quarter-point cut announced by the central bank was widely expected, so investors focused on Chairman Jerome Powell’s remarks during a news conference for hints about the Fed’s future plans.
Powell said that there could be more cuts, but that the central bank was not intending to embark on a long cycle of lowering interest rates. He characterized the rate cut as a “mid-cycle adjustment.”
The remarks sent stocks into a skid that briefly knocked the Dow Jones industrial average down more than 470 points. Prices of short-term U.S. government bonds fell, sending yields higher.
Stocks erased some of their losses later during Powell’s news conference, when he seemed to shift his message to leave open the possibility that the Fed would cut rates again.
“Clearly, the market is disappointed,” said Quincy Krosby, chief market strategist at Prudential Financial. “They wanted a more emphatic message from the Fed that this was in fact the beginning of a trend.”
The Standard & Poor’s 500 index declined 32.80 points, or 1.1%, to 2,980.38. It was the worst day in two months for the benchmark index, which hit an all-time high last Friday.
The Dow ended down 333.75 points, or 1.2%, at 26,864.27. The Nasdaq composite fell 98.19 points, or 1.2%, to 8,175.42. The Russell 2000 index of smaller companies retreated 10.99 points, or 0.7%, to 1,574.61.
Trading was muted Wednesday until the Fed issued its interest rate policy statement. The rate cut was widely expected, so the market didn’t have much of an initial reaction. That changed swiftly as Powell spoke, casting doubt on the prospects for further rate cuts.
“The market was expecting a cut of 25 basis points with an actively dovish message, meaning there would be more rate cuts coming,” Krosby said. “But once he started to talk about the fact that this was a mid-cycle adjustment ... the market always wants more.”
The 10-year Treasury yield fell to 2.01% from 2.06%, a big move. The two-year yield, which is more influenced by the Fed’s movements, rose sharply to 1.86% from 1.83%.
Stocks have been mostly pulling back after setting records last week. Wednesday’s losses were widespread, with technology, healthcare and consumer-oriented companies accounting for much of the tumble.
Investors also pored over a heavy flow of corporate earnings reports Wednesday.
Companies are about midway through the earnings reporting season, and results have generally beaten analysts’ dismal expectations.
Apple shares rose 2% after the company topped Wall Street’s profit and revenue forecasts for the quarter while slamming the brakes on the decline of iPhone sales in China. Sales of Apple’s best-known product are still sputtering, but it has seen increasing revenue contributions from digital services such as music.
Dine Brands Global shares fell 5.1% after the owner of IHOP and Applebee’s slashed its financial forecast for the year after a disappointing quarterly earnings report.
Molson Coors Brewing also slid 5.1% after reporting a global decline in volume and sales during the second quarter that weighed down profit. The beer maker fell short of analysts’ profit and revenue forecasts.
Benchmark crude oil rose 53 cents to settle at $58.58 a barrel. Brent crude oil, the international standard, rose 45 cents to close at $65.17 a barrel. Wholesale gasoline stayed at $1.90 a gallon. Heating oil rose 2 cents to $1.96 a gallon. Natural gas rose 9 cents to $2.23 per 1,000 cubic feet.