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Fed cuts rates by 25 bps, as expected

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Real estate, consumer discretionary sectors weakest

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Crypto stocks fall on Powell comments

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Indexes down: Dow 2.58%, S&P 500 2.95%, Nasdaq 3.56%

(Adds data, updates prices)

By Chuck Mikolajczak

NEW YORK, Dec 18 (Reuters) -

U.S. stocks plunged on Wednesday, with all three major

indexes posting their biggest daily decline in months, after the

Federal Reserve cut interest rates by a quarter of a percentage

point but disappointed some investors with projections that

signaled a more cautious path of easing next year.

The Fed

cut rates

by 25 basis points to the 4.25%-4.50% range and its summary

of economic projections (SEP) indicated it will make rate cuts

totaling a half percentage point by the end of 2025 given the

solid labor market and the recent stall in lowering inflation.

"If you look at the changes to the statement of economic

projection, they really had no choice," said Ellen Hazen, chief

market strategist at F.L.Putnam Investment Management in

Wellesley, Massachusetts.

"So as you look at all the changes that they made, it's

very clear that the economy is running a lot hotter than their

previous projection. And that has got to contribute to their

desire to potentially pause."

The Dow Jones Industrial Average fell 1,123.03

points, or 2.58%, to 42,326.87, the S&P 500 lost 178.45

points, or 2.95%, to 5,872.16 and the Nasdaq Composite

lost 716.37 points, or 3.56%, to 19,392.69.

The Dow suffered its 10th straight session of declines, its

longest streak of daily losses since an 11-session skid in

October 1974.

The Dow and S&P saw their biggest one-day percentage

decline since Aug. 5 and the Nasdaq saw its biggest daily

decline since July 24.

The small cap Russell 2000 dropped 4.4%, its

biggest drop since June 16, 2022. Small cap stocks are seen as

more likely to benefit from a lower interest rate environment.

Despite the declines, the Dow is up nearly 12.3% on the

year, while the S&P has rallied about 23% and the Nasdaq has

shot up more than 29%, lifted largely by technology companies

and enthusiasm around artificial intelligence, along with

prospects of a lower rate environment and more recently, the

hope of deregulation policies from President-elect Donald

Trump's incoming administration.

However, investors are also wary that some of Trump's

expected policies, such as tariffs, could rekindle higher

inflation.

The CBOE Volatility Index - an options-based

gauge of investor expectations for near-term stock market

gyrations - jumped 11.75 points to close at a four-month high of

27.62.

U.S. Treasury

yields moved higher

after the statement as the benchmark U.S. 10-year note

touched its highest level since May 31 at 4.518%.

"You've got the 10-year creeping back up, around that

4.5% and particularly the 5% level that's been a real problem

for equity markets," said Ross Mayfield, investment strategist

at Baird in Louisville, Kentucky.

"Probably the most obvious headwind or point of

contention for markets in the first quarter of next year is

whether the markets interpret the policies on the table as

inflationary and, or, pro-growth, both things are embedded in

the 10-year."

Markets were

pricing in

expectations the Fed will hold rates steady at its January

meeting, while factoring in about 33 basis points (bps) in cuts

for 2025, down from 49 bps immediately after the Fed statement.

Higher interest rates are usually seen as a drag to the

equity market, boosting the appeal of less risky assets while

crimping the ability of companies to grow earnings.

Each of the 11 major S&P 500 sectors were lower, with real

estate, down 4%, and consumer discretionary

leading declines, off 4.7%.

Cryptocurrency related stocks fell, with losses

accelerating after Powell said the central bank is

not allowed

to own bitcoin and is not seeking a law change in order to

do so. There has been speculation Trump's incoming

administration might seek to build a government owned stock of

the asset. Microstrategy ( MSTR ) tumbled 9.5%, MARA Holdings ( MARA )

plunged 12.2% and Riot Platforms ( RIOT ) fell 14.5%.

Declining issues outnumbered advancers by a 9.489-to-1

ratio on the NYSE, and by a 5.46-to-1 ratio on the Nasdaq.

The S&P 500 posted six new 52-week highs and 27 new

lows, while the Nasdaq Composite recorded 80 new highs and

264new lows.

Volume on U.S. exchanges was 18.59 billion shares,

compared with the 14.36 billion average for the full session

over the last 20 trading days.