U.S. stocks closed lower on Wednesday as the Federal Reserve maintained its decision to hold off on cutting interest rates in the near future. The Dow Jones Industrial Average decreased by 0.06 percent to 38,949.02 while the S&P 500 fell by 0.17 percent to 5,069.76. The Nasdaq Composite Index also declined by 0.55 percent to 15,947.74.
Of the 11 primary sectors in the S&P 500, seven ended the day in positive territory. Real estate and financials were the top gainers, with increases of 1.28 percent and 0.35 percent, respectively. On the other hand, communication services and technology sectors were the biggest losers, dropping 0.92 percent and 0.55 percent, respectively.
The first revision of the fourth-quarter 2023 U.S. gross domestic product data showed that the economy grew at a slightly lower rate than initially reported, at 3.2 percent annually. Inflation in the previous quarter was subdued, but slightly higher than previously estimated. Investors are now awaiting the release of the U.S. core personal consumption expenditures (PCE) price index data for January to get more insight into potential rate cuts.
The Commerce Department released data showing that the U.S. trade deficit in goods widened by 2.6 percent to 90.2 billion dollars in January. This data comes ahead of the upcoming report on the PCE price index for January, which is a key inflation gauge for the Federal Reserve.
Keith Buchanan, a senior portfolio manager at GLOBALT Investments, noted that with earnings reports out of the way, the focus has shifted to the inflation trajectory and the Federal Reserve’s response to it. The market is now waiting to see if the Fed will change its stance on interest rates as a result.
Federal Reserve Bank of New York President John Williams hinted at a possible rate cut later in the year, suggesting that three rate cuts in 2024 could be reasonable. Williams emphasized that despite ongoing inflation concerns, the economy is still strong with positive growth prospects.
Williams’ comments align with those of Fed Governor Michelle Bowman, who expressed reluctance to lower interest rates due to inflation worries. The CME Group’s FedWatch Tool now indicates a 52.8 percent chance of a rate cut of at least 25 basis points in June.
Overall, the market sentiment was cautious as investors weighed the potential impact of inflation on future rate decisions. With the Fed signaling a possible shift in monetary policy later in the year, market participants will closely monitor economic data for further clues on the direction of interest rates.
The upcoming release of key economic indicators, such as the PCE price index data for January, will provide additional insights into the inflation outlook and its implications for Fed policy. The stock market is likely to remain sensitive to any developments that could affect interest rates in the coming months.
