The broader stock market fell on Wednesday despite the Fed’s rate cut. Notably, the Dow Jones and S&P 500 indexes marked the biggest single-day drop since May 31. For the Nasdaq Composite, it was the highest one-day loss in over a month.
Stock market fell despite the Fed’s rate cut
The Dow Jones fell 333.75 points or 1.2% and closed at 26,864.27 on Wednesday. Meanwhile, the S&P 500 Index fell 32.80 points or 1.1% to 2,980.38. The Nasdaq Composite fell by 98.19 points or 1.2% and closed at 8,175.42.
The SPDR S&P 500 (SPY), the PowerShares QQQ (QQQ), and the iShares Russell 2000 (IWM) fell 1.1%, 1.4%, and 0.8%, respectively. SPY tracks the performance of the market-weighted index of US stocks in the S&P 500. QQQ tracks 100 US stocks listed under Nasdaq. IWM tracks US small-cap stocks’ performances.
Among the Dow 30 components, 27 stocks fell on Wednesday. Boeing (BA), UnitedHealth Group (UNH), Goldman Sachs (GS), and Home Depot (HD) are the top four heavyweights. Together, they account for 25% of the total weight. Boeing, UnitedHealth, Goldman Sachs, and Home Depot shares fell 1.8%, 2.3%, 0.6%, and 1.7%, respectively.
Fed hinted at no more rate cuts
On Wednesday, the Fed lowered the benchmark rate by 25 basis points to 2%–2.25%. The Fed reduced the benchmark rates for the first time in over a decade. As a result, the stock market celebrated the news. Also, there was a slight gain in major US indexes.
However, Fed Chairman Jerome Powell dampened investors’ hopes for more rate cuts this year. According to CNBC, Powell said during a news conference that the benchmark rate cut decision is a “midcycle adjustment.”
Notably, the Fed raised interest rates frequently until last December. The Fed hinted at another hike in December. The Fed also hinted at a series of rate hikes this year. Overall, the Fed changed its policy due to the broader market crash in November and December.
On Wednesday, Powell said that this was a strategic effort to adjust to economic conditions. The rate cut doesn’t guarantee future cuts. In the news conference, Powell said, “That refers back to other times when the FOMC has cut rates in the middle of a cycle, and I’m contrasting it there with the beginning of a lengthy cutting cycle. That is not what we’re seeing now, that’s not our perspective now.” He also said, “You have to look at not just the 25 basis-point cut but look at the committee’s actions over the year.”
During the conference, Powell revealed that the Fed expected to raise rates twice in 2019. Now, the Fed has moved to a “patient stance.” Future decisions will be based on macroeconomic situations. He said, “As we’ve moved to more accommodative policy, the economy has actually performed as expected with that gradual increase in support.”
Apple stock outshined in market turmoil
Powell’s comments sent the equity market down on Wednesday. However, Apple (AAPL) stock outshined with a gain of 2% despite a broader market sell-off. The increase was driven by Apple’s better-than-expected third-quarter results. Apple reported its results on Tuesday after the market closed.
For the third quarter, Apple reported an EPS of $2.18, which beat analysts’ estimate of $2.10. However, on a YoY (year-over-year) basis, Apple fell 6.8% due to sluggish revenue growth. The company’s revenues rose 1% YoY to $53.8 billion and beat analysts’ estimate of $53.4 billion.
Strong revenues from wearables, home, and accessories and continued strength in Apple’s services business mainly drove the top line. However, falling iPhone sales remained a drag on the overall revenue growth. The business unit’s sales fell 11.8% YoY to $26 billion. Notably, iPhone revenues fell 15% and 17% in the first quarter and second quarter, respectively.