S&P 500 Sees Worst Fed Day Since 2001; Yields Up: Markets Wrap

(Bloomberg) — The Federal Reserve shocked U.S. markets on Wednesday, sending stocks lower and pushing Treasury yields higher, on expectations of smaller interest rate cuts next year. This was the worst loss for the S&P 500 on interest rate decision day since 2001.

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The S&P 500 fell below the 6,000 level, suffering its worst session since August. The Nasdaq 100 index, which is dominated by technology stocks, fell 3.6%, the largest decline in five months. Micron Technology Inc. declined. In the aftermarket after earnings are announced.

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The yield on the policy-sensitive two-year US Treasury note rose 10 basis points to 4.35%, and the 10-year interest rate rose to a level last seen in May. The Bloomberg dollar gauge jumped to its highest levels since November 2022.

While Jerome Powell delivered a widely expected quarter-point rate cut after the Federal Open Market Committee meeting, the central bank signaled increased caution on inflation, including a decline in the extent to which members expect easing to go in 2025. The bank will More cautious as it considers further interest rate adjustments and said the Fed is committed to reaching its 2% target.

“We need to see progress on inflation,” Powell said. “That’s the way we think about it. It’s kind of a new thing. We moved fast to get here but we’re moving forward slower.”

The speed of Wednesday’s decline matches the speed with which the Fed returned to its dovish stance on inflation. Before the latest session, the S&P 500 had risen more than 10% since the Federal Open Market Committee’s interest rate decision on July 31, in which the central bank dropped its unilateral risk assessment and said maintaining labor market expansion had become a greater priority.

At a news conference on Wednesday, the president also said that some policymakers are beginning to incorporate their expectations into the potential impact of higher tariffs that President-elect Donald Trump might implement. But he said the impact of such policy proposals was highly uncertain at this stage.

Max Gochman, senior vice president of Franklin Templeton Investment Solutions, described Powell as “a hawk in dove’s clothing.”

“Despite downplaying the recent slowdown in lower inflation while boasting of strong economic momentum, he still hinted that tariffs would not be written off as temporary and that a two-cut forecast for 2025 is necessary because policy must remain restrained.” He said.

The last time the S&P 500 saw losses of this magnitude on the Fed’s decision day was September 17, 2001, when the index fell nearly 5%. It fell 12% on March 16, 2020, one day after the Federal Reserve’s emergency weekend meeting during the pandemic.

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