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Fed cuts rates by 50 basis points

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Intuitive Machines ( LUNR ) soars after clinching NASA contract

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S&P 500, Dow hit intraday records

(Updated at 2:47 p.m. ET/1647 GMT)

By Chuck Mikolajczak

NEW YORK, Sept 18 (Reuters) -

U.S. stocks closed with modest losses on Wednesday, well off

their intraday highs, after the Federal Reserve cut interest

rates by 50 basis points, the high side of estimates for its

first cut in more than four years.

Trading was choppy. Prior to the announcement, the S&P

500 oscillated between modest gains and losses. The benchmark

index rose as much as 1% after the announcement before paring

gains and finally closing lower.

Citing a "greater confidence" that inflation was moving

toward the central bank's 2% target, the

Fed cut rates

by half a percentage point, as it now focuses on keeping

the labor market healthy.

"The Fed ended the pause with a bang. It's a strong

signal that they cut by 50 basis points and expect another 50

basis points of cuts this year," said Brian Jacobsen, chief

economist at Annex Wealth Management in Menomonee Falls,

Wisconsin.

"The Fed is projecting that by front loading the cuts

they can stick the landing with the unemployment rate at 4.4%

and inflation dropping to target quickly."

Market expectations for the size of the rate cut had

been volatile in recent days, pricing in about a 65% chance for

a 25 basis point cut last week to a 57% chance for the larger 50

basis point cut earlier on Wednesday, according to CME's

FedWatch Tool

.

According to preliminary data, the S&P 500

lost 16.37 points, or 0.29%, to end at 5,618.21 points,

while the Nasdaq Composite lost 52.39 points, or 0.30%,

to 17,575.67. The Dow Jones Industrial Average fell 97.30

points, or 0.23%, to 41,508.88.

Markets are now fully pricing in a cut of at least 25

basis points at the Fed's November meeting, with a roughly 35%

chance for another 50 basis point cut.

"It's amazing to me how even when markets get what they

seemingly want, they immediately want more," said Steve Sosnick,

chief market strategist at Interactive Brokers in Greenwich,

Connecticut.

"It's important to note that stocks are not rocketing

ahead (at least not yet) after getting what they wanted. After 7

straight up days, a lot of good news was priced in."

Borrowing costs had been parked at their highest levels in

over two decades since July 2023, when the central bank last

hiked interest rates by 25 basis points to between 5.25% and

5.50% to combat inflation.

After the rate cut announcement, Fed Chair

Jerome Powell said

the central bank's forecast for the path of interest rates

did not imply the need for urgent action.

Small cap stocks, seen as more likely to benefit from a

lower interest rate environment, moved higher, with the Russell

2000 outperforming its large cap brethren. Regional

banks, some of which had been stressed by higher interest rates,

also gained ground, with the KBW Regional bank index

closing with solid gains.

Markets have rallied this year, with all three major indexes

setting record highs on prospects of lower interest rates as

inflation moderated and the jobs market showed gradual signs of

cooling. The Dow and S&P 500 hit intraday highs on Wednesday.

Intuitive Machines ( LUNR ) surged after clinching a $4.8

billion navigation services contract from NASA.