Dow closes lower after big Fed rate cut

Stocks ended lower on Wednesday in a volatile trading session following the Federal Reserve's half-percentage-point interest rate cut. While traders initially reacted positively to the sizable reduction, it also sparked concerns that the Fed was attempting to preempt potential economic weakness.

Notably, the Fed revised its interest rate projections for 2024, 2025, and 2026. The forecast for this year was adjusted from 5.1% to 4.4%, while the 2025 projection was lowered from 4.1% to 3.4%. For 2026, the outlook dropped from 3.1% to 2.9%. The Fed expects both PCE inflation and Core PCE inflation to reach the 2.0% target by 2026.

Dow Jones tested historic highs

The Dow Jones Industrial Average fell by 103.08 points, or 0.25%, closing at 41,503.10 after reaching a peak of 375.79 points shortly after the Fed's announcement.

The Dow Jones reached new highs as traders responded to the Fed's decision but has since pulled back from that initial surge.

The RSI is currently in moderate territory, indicating there is ample room for momentum to build if the right catalysts arise. If Powell reassures traders regarding the labor market outlook, the Dow Jones could have a solid chance of closing above the 42,000 level.

S&P 500 gained ground

The S&P 500 lost 0.29% and closed at 5,618.26. The Nasdaq Composite dropped 0.31% to 17,573.30. The S&P 500 and the Dow both touched records initially before falling back.

The S&P 500 approached historic highs as traders reacted to the Fed's interest rate decision. The central bank opted to cut the federal funds rate by 50 basis points to a range of 4.75% to 5.00%. Analysts had anticipated a smaller cut of 25 basis points, making Powell's stance more dovish than expected.

The S&P 500 has already retreated from its session highs. The dovish stance of the Fed could offer substantial support to the market, but traders are likely to pay close attention to the labor market outlook, which suggests the Fed anticipates an economic slowdown. From a technical perspective, the S&P 500 needs to close above the resistance level of 5660 to 5680 to build upward momentum.

NASDAQ made an attempt to climb

The NASDAQ attempted to break above the resistance level of 19,500 to 19,600 but lost momentum and retreated. Traders should pay close attention to Powell’s upcoming press conference, as the Fed Chair’s remarks are likely to significantly influence market dynamics.

If the NASDAQ successfully closes above 19,600, it could then target the next resistance range of 20,000 to 20,100.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.