NEW YORK — On Wednesday, U.S. stock market indexes experienced a decline following the Federal Reserve’s decision to maintain interest rates, marking the first time since September that the central bank chose not to implement a cut aimed at stimulating the economy.
The S&P 500 dropped by 0.5% after the anticipated decision by the Fed. Meanwhile, the Dow Jones Industrial Average lost 137 points, equivalent to a 0.3% decline, and the Nasdaq composite mirrored this trend with a similar 0.5% decrease.
In the bond market, reactions to the Fed’s decision were also somewhat subdued. This suggests that rates may remain stable in the near future, following a significant drop at the close of 2024. Lower interest rates typically benefit the economy by making borrowing more affordable for both households and businesses; however, such a scenario could potentially exacerbate inflation issues.
Following the decision, Fed Chair Jerome Powell remarked that rate cuts could become a possibility if inflation subsides or if the job market experiences a significant downturn. He emphasized, “At this moment, we don’t see those conditions, and we believe the economic situation is quite favorable for our policies, thus we don’t feel an urgency to make changes.”
While lower interest rates are usually favorable on Wall Street, Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, noted that the focus should remain on the reasons why the Fed is unlikely to cut rates in the near term, particularly due to a robust economy and strong labor market, which bodes well for corporate earnings.
The trading on Wednesday managed to stabilize compared to the previous two days, which were marked by volatility fueled by concerns surrounding the artificial intelligence (AI) sector.
The AI landscape was stirred by DeepSeek, a Chinese company claiming to have developed a competitive large-language model that does not rely on high-end semiconductor technology. This revelation has raised questions regarding the projected expenses associated with AI development, such as costs for chips, extensive data centers, and energy consumption, which Wall Street and major tech firms had deemed necessary. Such uncertainties have created wild fluctuations in stocks across the sector, notably impacting Nvidia.
Nvidia, a company often viewed as a symbol of the AI market boom, witnessed a 4% drop in its stock on Wednesday, following a nearly 17% decline on Monday and a rebound of nearly 9% on Tuesday, making it the primary contributor to the S&P 500’s downturn.
The surge in stock prices for Nvidia and other major technology firms has significantly propelled the S&P 500, enabling it to achieve consecutive yearly gains exceeding 20% for the first time since the early 2000s. Notably, Nvidia accounted for over 20% of the S&P 500’s overall return last year.
In contrast, there were positive movements from several companies on Wall Street. Starbucks experienced an 8.1% increase after exceeding profit expectations for the latest quarter. CEO Brian Niccol announced plans to streamline operations by reducing food and beverage offerings by 30% within the year, as part of a turnaround strategy.
T-Mobile US observed a 6.3% rise after surpassing Wall Street’s profit and revenue forecasts for the last quarter of 2024 and projecting an increase of 5.5 to 6 million new postpaid customers for the year.
Additionally, Brinker International, the owner of Chili’s restaurants, surged by 16.3% following a better-than-expected earnings report. CEO Kevin Hochman noted that Chili’s has successfully attracted new patrons and is seeing a rise in repeat customers.
Railroad operator Norfolk Southern also saw gains, rising 1.8% after exceeding profit expectations, with optimistic sentiments surrounding potential regulatory easing by a Republican-led Congress.
Frontier Group Holdings climbed by 5.3% after announcing its intention to attempt a second merger with Spirit Airlines, which had filed for bankruptcy protection late last year. The proposed deal would reportedly involve newly issued debt and common stock from Frontier.
On an interesting note, Trump Media & Technology Group announced plans to enter the financial services sector through a partnership with Charles Schwab. Following this announcement, the stock initially surged but settled to a 6.8% increase.
On the downside, Danaher shares fell by 9.7% after the life sciences, biotechnology, and diagnostics firm reported quarterly results that fell short of analysts’ expectations.
In summary, the S&P 500 closed down by 28.39 points at 6,039.31, while the Dow Jones Industrial Average dipped 136.83 points to 44,713.52, and the Nasdaq composite fell by 101.26 points, finishing at 19,632.32. Within the bond market, the yield on the 10-year Treasury remained unchanged at 4.53%.
In overseas markets, European indexes showed mixed results, with ASML’s stock climbing by 5.6% in Amsterdam after revealing robust revenue due to demand for its advanced chip production tools. In Asia, where many markets were closed for holidays, Japan’s Nikkei 225 index rose by 1%.
