WASHINGTON (dpa-AFX) - After showing a lack of direction for much of the session, stocks came under pressure late in the trading day on Wednesday in reaction to comments from Federal Reserve Chairman Jerome Powell offsetting optimism about future interest rate cuts.
The major averages climbed off their worst levels but still ended the day sharply lower. The Dow plunged 333.75 points or 1.2 percent to 26,864.27, the Nasdaq tumbled 98.19 points or 1.2 percent to 8,175.42 and the S&P 500 slumped 32.80 points or 1.1 percent to 2,980.38.
The late-day sell-off on Wall Street came after the Fed reduced interest rates by quarter point, as expected, but Powell signaled the rate cut is not the start of a trend.
The Fed said it decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent, down 25 basis points from the previous range of 2-1/4 to 2-1/2 percent. This marks the first rate cut by the Fed since December of 2008.
The central bank cited implications of global developments for the economic outlook as well as muted inflation pressures as reasons for the rate cut.
The vote to cut rates was not unanimous, however, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferring to keep rates unchanged.
In his subsequent press conference, Powell described the rate cut 'essentially as a mid-cycle adjustment to policy.'
Powell suggested that today's rate cut should not be seen as 'the beginning of a lengthy cutting cycle,' adding, 'That is not what we're seeing now, that's not our perspective now.'
The comments from Powell are likely to anger President Donald Trump, who has been calling on the Fed to slash rates by a full percentage point and claimed in a post on Twitter on Monday that the central bank has 'made all of the wrong moves' and that a 'small rate cut is not enough.'
'Powell's view that the Fed today delivered a 'mid-cycle adjustment' seems to indicate that the Fed is leaning towards delivering less accommodation than some seem to expect,' said Commerzbank Economist Bernd Weidensteiner.
'Trump will not be overly happy with this policy line and might continue to take aim at Fed chair Powell,' he added. 'At the same time the Fed's hawks will try to argue the 'one-and-done' line. Life for the Fed is set to get interesting in the next months.'
The Fed said the timing and size of future adjustments to rates will be determined based on realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
In addition to cutting rates, the central bank revealed the reduction of bonds it is holding on its balance sheet will conclude in August, two months earlier than previously indicated.
The Fed is scheduled to make its next monetary policy decision following a two-day meeting on September 17 and 18.
Sector News
Gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 5.4 percent. The sell-off by gold stocks came as the price of the precious metal fell sharply in extended trading.
Significant weakness was also visible among semiconductor stocks, as reflected by the 3.2 percent slump by the Philadelphia Semiconductor Index.
Chipmaker Advanced Micro Devices (AMD) posted a steep loss after reporting second quarter results that met estimates but providing disappointing guidance.
Steel, software, and housing stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan's Nikkei 225 Index slumped by 0.9 percent, while Hong Kong's Hang Seng Index tumbled by 1.3 percent.
Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index fell by 0.8 percent, the French CAC 40 Index inched up by 0.1 percent and the German DAX Index rose by 0.3 percent.
In the bond market, treasuries saw considerable volatility in late-day trading before closing firmly positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4 basis points to 2.021 percent.
Looking Ahead
Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on reports on weekly jobless claims, manufacturing activity, and construction spending.
On the earnings front, Fitbit (FIT), Qualcomm (QCOM), Western Digital (WDC), and Zynga (ZNGA) are among the companies releasing their quarterly results after the close of today's trading,
Clorox (CLX), General Motors (GM), Verizon (VZ), and Yum! Brands (YUM) are also among the companies due to report their results before the start of trading on Thursday.
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