Wall St subdued as investors await Fed decision with bated breath

September 18, 2024 – 7:23 AM PDT

REUTERS/Brendan McDermid/File Photo

(Reuters) – Wall Street’s main indexes were flat on Wednesday as investors stepped onto the sidelines ahead of the Federal Reserve’s highly anticipated first interest rate cut in more than four years, with bets favoring a 50-basis-point reduction.

Advertisement

Borrowing costs have stayed at their highest levels in over two decades since July 2023, when the central bank last hiked interest rates by 25 basis points to between 5.25% and 5.50% to combat inflation. But the focus recently has been more about a moderating labor market.

At 9:45 a.m., the Dow Jones Industrial Average (.DJI) fell 40.18 points, or 0.11%, to 41,560.69, the S&P 500 (.SPX) gained 3.11 points, or 0.06%, to 5,637.69 and the Nasdaq Composite (.IXIC) edged up 22.76 points, or 0.13%, to 17,650.82.

Nine of the 11 S&P 500 sectors traded flat, although energy (.SPNY) and industrials (.SPLRCI) edged up 0.3% each.

The Russell 2000 index (.RUT), tracking small caps which tend to fare better in a lower interest-rate environment, crept up 0.19%.

The benchmark S&P 500 (.SPX) and the blue-chip Dow (.DJI) both recovered from an early August rout and are trading just shy of their respective record highs ahead of the Fed decision, expected at 2:00 p.m. ET.

Economic indicators over the previous one month have been relatively mixed, making investors nervous ahead of the least predictable Fed decision in years.

Following dovish commentary from present and former Fed officials recently, traders are now pricing in 61% chances of a bigger 50-basis-point reduction, according to the CME Group’s FedWatch tool.

Some analysts, however, caution that an outsized move from the central bank could spook markets.

Bets for a smaller 25-bps cut have now slipped to 39% from 86% a week ago. Investors will also be watching for comments from Fed Chair Jerome Powell at 2:30 p.m. ET to gauge the central bank’s stance on the economy and prospects of further rate cuts this year.

“It’s been the first meeting in a while that you have no 100% consensus on whether it’s going to be one (quarter-percentage-point) cut or two,” said Mike Dickson, head of research in quantitative strategies at Horizon Investments.

“No matter what happens today, there’s going to be some people that get what they expected and some people that don’t.”

Stock options are pricing an about 1.1% swing, in either direction, for the S&P 500 after the Fed’s verdict, according to options analytics service ORATS.

Markets have rallied this year, with all three major indexes setting record highs on prospects of lower interest rates as inflation moderated and the jobs market showed gradual signs of cooling.

Heavyweight growth stocks such as Apple (AAPL.O) climbed 1% and Alphabet (GOOGL.O) added 0.41%, while Microsoft (MSFT.O) slipped 0.57%.

Intuitive Machines (LUNR.O) jumped 52% after clinching a $4.8 billion navigation services contract from NASA.

U.S. Steel (X.N) rose 1.7% after sources said the U.S. national security panel reviewing Nippon Steel’s (5401.T) bid for the U.S.-based steel maker let the companies refile their application for approval of the deal.

Advancing issues outnumbered decliners by a 1.75-to-1 ratio on the NYSE and by a 1.26-to-1 ratio on the Nasdaq.

The S&P 500 posted 16 new 52-week highs and no new lows, while the Nasdaq Composite recorded 23 new highs and 21 new lows.

^{Reporting by Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Pooja Desai and Maju Samuel}

Advertisements below