Wall Street Set For Worst Fed Day Since December: Markets Wrap
An initially calm reaction in markets was broken when Fed Chair Jerome Powell told reporters that no decision has been made about easing policy in September.
Wall Street’s hopes the Federal Reserve would signal imminent interest-rate cuts went mostly unfulfilled Wednesday, sending stocks and bonds lower to cap an otherwise bumper month for risk assets. Copper tumbled as President Donald Trump’s tariffs excluded the refined metal.
An initially calm reaction in markets was broken when Fed Chair Jerome Powell told reporters that no decision has been made about easing policy in September. The US labor market “looks solid,” he said, while inflation remains above target, statements traders interpreted as working against the case for an imminent policy move.
Wall Street parses data on Fed day.
Equities erased gains, with the S&P 500 down 0.4%. Treasury two-year yields climbed seven basis points to 3.94%. While the concerted pullback in stocks and bonds looked mild, it marked the worst Fed day since December. The dollar rose for a fifth straight session, the longest advance since February.
While Trump has pressed for an immediate rate cut, investors in risk assets have largely tempered expectations for a Fed pivot anytime soon. Instead, they’re leaning on resilient economic growth, an AI-fueled earnings boom, and the belief that tariffs will only trigger manageable goods inflation while leaving services inflation contained.
The Federal Open Market Committee voted 9-2 on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have at each of their meetings this year. Governors Christopher Waller and Michelle Bowman voted against the decision in favor of a quarter-point cut.
“It appears the Fed will remain data dependent going into its next meeting,” said Bret Kenwell at eToro. “To get that rate cut, the Fed will need to gain confidence that either inflation increases will be one-off and muted, or that inflation will continue to trend lower in the months and quarters ahead. That’s assuming we don’t see a notable deterioration in the labor market.”
Inflation-adjusted gross domestic product rose an annualized 3% in the second quarter. As solid as the pace was, growth averaged 1.25% in the first half, a percentage point cooler than the pace for 2024. Consumer spending advanced 1.4%, the tamest growth in consecutive quarters since the pandemic.
Earnings season for a handful of megacap tech firms has morphed into capex season with the AI arms race showing no signs of slowing.
Focus will be on how much the behemoths Microsoft Corp. and Meta Platforms Inc. plan to dish out to keep up with competitors like Alphabet Inc. and Amazon.com Inc. as they build out infrastructure and software to power artificial intelligence applications.
The S&P 500, coming off its best streak of gains since 2020, is about to enter what has historically been its toughest stretch of the year.
Over the past three decades, the benchmark has performed the worst in August and September, losing 0.7% on average in each month, compared with a 1.1% gain on average across other months, data compiled by Bloomberg show.
Though equities have likely not peaked this year, we see limited upside given the historically high multiples at which market-leading stocks are trading, according to Chris Brigati at SWBC.
“We are entering a seasonal period of weakness for the market suggesting a fall pullback may be on the horizon before the next move toward higher stock prices in 2026,” he said.
The US stock rally has been fueled by retail traders, while institutional buying has been more measured, according to Barclays Plc strategists led by Emmanuel Cau.
Wells Fargo Investment Institute is raising its year-end forecasts and target ranges for US equities this year and next, saying tariff delays and deregulation are poised to keep driving the stock market higher.
The firm sees S&P 500 closing 2025 at a 6,400 midpoint — roughly where US benchmark is currently trading — and 2026 at a 7,000 midpoint.
“While we expect equities to advance over the next 12 months, investors should be mindful of potential market swings in the coming weeks,” said Mark Haefele at UBS Global Wealth Management.
The market’s next catalyst is likely to be continued progress on trade, Brigati noted.
Trump touted landmark agreements with Japan and the European Union in the past week, adding to pacts with a handful of smaller economies. An extension of the US-China tariff truce is also in the works.
“Meaningful progress with the China trade negotiations would remove a significant headwind for markets,” Brigati said.
The US president said he would impose a tariff rate of 25% on India starting on Aug. 1 and suggested he would add an additional penalty over the country’s energy purchases from Russia.
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.4% as of 3:32 p.m. New York time
The Nasdaq 100 fell 0.1%
The Dow Jones Industrial Average fell 0.6%
The MSCI World Index fell 0.5%
Currencies
The Bloomberg Dollar Spot Index rose 0.7%
The euro fell 1.1% to $1.1424
The British pound fell 0.8% to $1.3238
The Japanese yen fell 0.6% to 149.39 per dollar
Cryptocurrencies
Bitcoin fell 0.9% to $116,450.45
Ether fell 1% to $3,725.33
Bonds
The yield on 10-year Treasuries advanced five basis points to 4.37%
Germany’s 10-year yield was little changed at 2.71%
Britain’s 10-year yield declined three basis points to 4.60%
The yield on 2-year Treasuries advanced seven basis points to 3.94%
The yield on 30-year Treasuries advanced four basis points to 4.89%
Commodities
West Texas Intermediate crude rose 1.4% to $70.21 a barrel
Spot gold fell 1.7% to $3,271.31 an ounce
