[New York Market Morning Briefing] Fed cuts rate by 0.25 percentage point… Dow up, S&P flat

Tech stocks broadly fell as investors took profits

Russell 2000 jumped 0.4% on the rate cut

U.S. small businesses have high reliance on variable rates

The U.S. central bank (Fed) on the 17th (local time) as expected cut the policy rate by 0.25% point to an annual 4.00~4.25%, after which the Dow Jones Industrial Average closed higher in New York trading, while the S&P 500 ended flat after large volatility. Jerome Powell, Fed Chair, stressed that this move is not the start of a prolonged rate-cutting cycle, somewhat dampening expectations.

The S&P 500 fell 0.3% and the Nasdaq Composite fell 0.5%. In contrast, the Dow rose 259 points (0.6%) to close higher after hitting an intraday record.

After the Fed's rate cut decision, tech stocks broadly declined. NVIDIA, Oracle, Palantir, and Broadcom all fell as investors took profits from stocks that had led the rally. Conversely, stocks expected to benefit from the rate cut showed strength and supported the Dow and major indices. Walmart, JPMorgan Chase, and American Express rose.

The biggest beneficiaries on the day were the small- and mid-cap-focused Russell 2000 index, which jumped 0.4%. Small businesses have high reliance on variable interest rates and can directly benefit from rate cuts.

The Federal Open Market Committee (FOMC) voted 11-1 to cut the policy rate by 0.25% point, lowering the federal funds rate to a range of 4.0~4.25%. It also signaled two additional rate cuts for the remainder of the year.

In its statement, the Fed noted a recent slowdown in the labor market. The statement said, "Job gains have slowed, and the unemployment rate has risen slightly but remains low." It also assessed that "economic activity has softened, and inflation remains somewhat elevated."

What dampened market expectations was Powell's remarks at the press conference. He described this rate cut as a "risk-management cut," suggesting it was an "insurance" cut to guard against the possibility of a sharp economic slowdown.

Powell said, "There is no longer a risk-free path. It is not clear what we should do."

The Fed also presented a more hawkish rate outlook for 2026. Markets had expected 2-3 rate cuts, but the Fed projected only one cut next year. However, the dot plot still showed wide differences among members' views.

Christopher Rupkey, chief economist at FWD Bonds, said, "The Fed made the smallest cut at the September meeting and did not hit the panic button. The 0.25% point per meeting pace of cuts signals that the Fed no longer views tariff-driven inflation as a serious threat and sees the economic slowdown manifested in reduced corporate hiring as a bigger risk. Fears of stagflation have faded, and now labor market issues are the top priority."

New York=Shin-young Park, correspondent nyusos@hankyung.com