2/1/2024

Fed keeps rates unchanged, indices closed lower

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Key points:

  • The Fed left its key rate unchanged at 5.25%-5.50%.
  • Fed Chairman Jerome Powell said rate cuts would be appropriate once inflation was confirmed to be under control, but effectively ruled out a rate cut in March.
  • All three major US stock market indexes closed lower.

The Federal Reserve (Fed) kept its benchmark interest rate unchanged at 5.25%-5.5%, signaling its confidence that the economy is on a sound footing even as inflation gradually eases. However, Fed Chairman Jerome Powell hinted at a potential rate cut later this year.

Traders are now increasingly betting on a rate cut in May, with some even suggesting a cut as early as March. The US central bank kept the policy rate at the current level of 5.25%-5.5%, where it has been since July.

 

Wall Street ended the day lower

The three major U.S. stock indexes, already reeling from Alphabet’s disappointing earnings, suffered further losses following the Federal Reserve’s decision to hold interest rates unchanged. The sell-off intensified after Fed Chairman Jerome Powell’s press conference.

The S&P 500 finished with its worst daily decline since September 21, while the Dow Jones Industrial Average and the Nasdaq Composite also closed lower.

The Dow dropped 317 points, or 0.82%, to 38,150, the S&P 500 lost 79 points, or 1.61%, to 4,845, and the Nasdaq shed 345 points, or 2.23%, to 15,164. Communication services and technology stocks fared the worst, with the respective indices, the S&P Communication Services Select Industry Index and the Technology Select Sector SPDR Fund, falling 3.8% and 2.1%, respectively.

Stocks decline mid-earnings season

The fourth-quarter earnings season is gaining momentum, with nearly one-fifth of S&P 500 companies expected to report their results this week.

Alphabet Inc.’s shares plunged 7.5% following a disappointing earnings announcement from Google’s parent company, which reported lackluster ad revenue and projected higher capital expenditures for AI expansion.

Microsoft Corp. also acknowledged rising costs for AI development, but the company’s quarterly performance surpassed analyst expectations. Its shares were down 2.7% at the last check.

The S&P 500 recorded 59 new 52-week highs and three new lows, while the Nasdaq Composite index added 132 new highs and 125 new lows. Trading volume on U.S. exchanges was relatively robust, with 13.3 billion shares traded, compared to an average of 11.5 billion shares over the past 20 trading sessions.

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