SPX: S&P 500 Gives Up Fed-Fueled Gains After Super-Sized Rate Cut Spooks Traders

“Is the economy in trouble?” - traders, probably, as they shun risk assets and turned defensive after they got what they wanted.

• The S&P 500 index (SPX) was all over the place Wednesday when the Federal Reserve finally kicked off its rate-cutting cycle. For the first time in four years, the US central bank slashed interest rates in efforts to ease monetary conditions and allow for cheaper borrowing. At first glance, Wall Street (and you?) got what it wanted — a bigger 50-basis-point cut to interest rates.
• Still, the broad-based average closed down after touching a new intraday record. The S&P 500 lost 0.3% on the day as investors suddenly became jittery. But why? A cut of that magnitude might actually signal some problems. Why would the Fed reduce that much if the economy was doing fine? Naturally, the tide turned and all three major indexes slipped under the flatline for the day.
• The new thinking now suggests that the economy might be staring into a possible recession. Hence, the Fed decided to leapfrog the casual 25-basis-point cut and opt for the bolder half-point slash. What’s more, Fed boss Jay Powell said that officials are likely to reduce rates by another half point by the end of 2024, bringing the benchmark interest rate to 4.5%.