S&P 500 and Nasdaq 100: Market Pauses After Fed’s Rate Cut Rally, Volatility Ahead

Wall Street Pauses as Investors Digest Fed’s Oversized Rate Cut

Wall Street’s key indexes edged lower on Friday, with investors pausing to assess the market after a strong rally fueled by a significant interest rate cut by the Federal Reserve. Despite the pullback, the S&P 500, Dow Jones Industrial Average, and Nasdaq remained close to their record highs, reflecting a strong week overall. All three indexes were on track for gains of around 1%, with the tech-heavy Nasdaq leading the charge.

At 17:25 GMT, the Dow Jones Industrial Average is trading 42106.18, up 80.99 or +0.19%. The S&P 500 Index is at 5704.92, down 8.72 or -0.15% and the Nasdaq is trading 17957.60, down 56.38 or -0.31%.

Sector Performance Highlights

Most sectors within the S&P 500 traded lower, with industrial stocks taking the biggest hit, falling 0.7%. Utilities were a bright spot, climbing 1.8%, as investors sought safe-haven assets amidst concerns about the economic outlook.

Technology stocks also struggled, declining 0.4%, led by a drop in Nvidia. This retreat followed a robust performance in the prior session, where tech stocks had enjoyed their best day in over a week.

Thursday saw the S&P 500 and Dow close at all-time highs, marking their best performance in over a month. Historically, September tends to be a weaker month for U.S. equities, but this year, the S&P 500 seems poised to defy the trend.

Fed’s Rate Cut and Market Reactions

The Federal Reserve kicked off a fresh cycle of monetary easing earlier in the week, slashing interest rates by 50 basis points. The aggressive cut aims to support ongoing steady growth, low inflation, and robust employment numbers. However, some investors are wary. Michael Matousek of U.S. Global Investors noted concerns over potential hidden risks and the possibility that the Fed’s “soft landing” strategy could falter.

Expectations for future rate cuts have fluctuated. Traders now see a 53.7% chance of a 25 basis point cut in November, down from 60.4% earlier in the day, according to CME Group’s FedWatch tool. Fed Governor Christopher Waller supported the larger-than-expected cut, citing upcoming weak inflation readings as justification for the move.

Market Volatility on the Horizon

Friday’s close could bring increased market volatility due to “triple witching,” when options and futures linked to indexes and individual stocks expire simultaneously. The event typically causes fluctuations in trading volume and market prices, potentially heightening market swings before the weekend.

Outlook and Market Forecast

While high valuations pose some risks, the market is still benefiting from the Fed’s rate cuts, which historically support equity performance. With the S&P 500 and Dow near record highs, the short-term outlook remains cautiously bullish. However, investors should remain vigilant, as further upside may be limited by economic uncertainties and volatility linked to Fed policy. Traders can expect continued gains, but with potential downside risks looming if growth or inflation surprises emerge.