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Fed cuts rates by 25 bps, as expected

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Real estate, consumer discretionary sectors weak

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Crypto stocks fall on Powell comments

(Updates to market close)

By Chuck Mikolajczak

NEW YORK, Dec 18 (Reuters) -

U.S. stocks plunged on Wednesday, erasing earlier gains

after the Federal Reserve cut interest rates by a quarter of a

percentage point and the central bank's economic projections

signaled a slower pace of cuts 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."

According to preliminary data, the S&P 500

lost 181.39 points, or 2.96%, to end at 5,869.22 points,

while the Nasdaq Composite lost 728.19 points, or 3.62%,

to 19,380.87. The Dow Jones Industrial Average

fell 1,135.57 points, or 2.61%, to 42,300.04.

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

mark its longest daily streak of losses since an 11 session skid

in October 1974.

Despite the recent declines, the Dow is up nearly 15% on

the year, while the S&P has rallied about 26% and the Nasdaq has

shot up almost 33%, lifted in large part by technology companies

and enthusiasm around artificial intelligence, along with the

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 as much as 8.0 points to a four-month high of

23.87.

U.S. Treasury

yields moved higher

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

reached its highest level since May 31 at 4.51%.

"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."

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 and consumer discretionary leading

declines.

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. Miscrostrategy, MARA Holdings ( MARA ) and

Riot Platforms ( RIOT ) each closed lower on the session.