Stocks Pause for a While as Traders Await the Fed's Key Decision

US equities wavered in early Wednesday trading as Wall Street took a cautious stance ahead of a highly anticipated Federal Reserve rate cut this afternoon.

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At 9:38 a.m. in New York, the S&P 500 Index was essentially flat, while the Nasdaq 100 slipped 0.2%. The dip marked a pause in the tech-heavy index’s recent surge, which had strung together nine consecutive days of gains before momentum began to fade.

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Policymakers are expected to lower borrowing costs later today, marking the first rate cut of 2025. Traders have already priced in a quarter-point reduction, while options markets suggest investors anticipate at least a half-point of total cuts across the three remaining Fed meetings this year.

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All eyes will be on Fed Chair Jerome Powell during his post-meeting press conference. While Powell is likely to avoid committing to a series of cuts, markets will parse every word for clues on the central bank’s longer-term path.

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Bloomberg Economics forecasts two dissents: newly appointed Governor Stephen Miran, who favors a larger half-point cut, and Kansas City Fed President Jeffrey Schmid, who reportedly supports holding rates steady.

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Citigroup’s head of US equity trading strategy, Stuart Kaiser, noted that the S&P 500 is priced for a 0.72% move in either direction following the announcement. That’s slightly below the 0.77% average swing recorded over the past eight Fed meetings. With stocks hovering near record highs, however, even a small policy surprise could spark bigger market ripples.

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Andrew Tyler, JPMorgan Chase & Co.’s head of global market intelligence, expects a measured response. He projects the most likely outcome is a quarter-point cut, followed by a 0.5% to 1% rally in the S&P 500 if Powell emphasizes a gradual, dovish approach.

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Rate cuts with equities at record levels are relatively rare. According to Alexander Altmann, global head of equities tactical strategies at Barclays Plc, the Fed has reduced rates only a handful of times when the S&P 500 was at all-time highs. The most recent examples were November 2024 and January 1996.

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In 2024, the benchmark traded sideways in the following three months, while in 1996 it resumed its climb. Looking further back, Altmann’s research shows that in the 16 instances over the past 50 years when the Fed cut rates with the S&P 500 within 1% of a record high, stocks generally performed well.

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On a 42-day horizon, the index delivered mean and median returns of 1.9% and 2.9%, with an 81% chance of gains. Over a one-year stretch, the S&P advanced every single time.

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“Stocks typically perform well in rate-cutting cycles,” said Chris Brigati, chief investment officer at SWBC in San Antonio. “While some of that optimism may already be reflected in prices, the stimulative impact should continue supporting the market.”

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Beyond the Fed, individual corporate moves drew attention.

• Nvidia Corp. shares dropped after a Financial Times report revealed that China’s internet regulator ordered companies including Alibaba Group Holding Ltd. and ByteDance Ltd. to cancel purchases of Nvidia’s RTX Pro 6000D chips. The move highlights ongoing geopolitical headwinds facing the semiconductor giant.
• Workday Inc. advanced after Elliott Investment Management expressed confidence in the HR software provider, noting significant progress in its business over the past several years.

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With the Fed decision looming, Wall Street remains in wait-and-see mode. While expectations lean toward a modest cut, Powell’s tone will ultimately guide whether today’s move sparks fresh momentum or reinforces caution.

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For investors, the bigger picture remains supportive: historical patterns suggest stocks often fare well following rate reductions, especially when underpinned by resilient earnings and ongoing economic stimulus.

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