Dow, S&P 500 and Nasdaq edge up after Fed's 2025 outlook declines

Wall Street recouped some of Wednesday’s sharp losses after the Federal Reserve cut its forecast for interest rate cuts next year.

The Fed cut its key interest rate, the short-term benchmark interest rate, by a quarter of a percentage point late Wednesday as expected, but reduced its forecast for rate cuts next year. It only expects to cut the key interest rate twice, each time by a quarter of a percentage point, as higher inflation is forecast. That’s less than the September forecast, which called for four rate cuts of a quarter point each. The prospect of fewer interest rate cuts and higher inflation weighed on all three major U.S. stock indexes, which posted their biggest daily declines since August.

“Santa came early and dropped a 25 (quarter percentage point) rate cut in market supplies, but accompanied it with a note that there would be coal next year,” said Chris Zaccarelli, chief investment officer of Northlight Asset Management.

The indices recovered somewhat on Thursday afternoon. The broad S&P 500 index rose 0.40%, or 23.36 points, to 5,895.52, and the tech-heavy Nasdaq gained 0.48%, or 92.31 points, to 19,485.01. The blue-chip Dow rose 0.43%, or 184.02 points, to 42,510.89, on track to end a 10-day losing streak, its longest since 1974.

Economy remains strong

The U.S. economy grew at a seasonally adjusted annual rate of 3.1% between July and September, 0.3 percentage points better than the Commerce Department’s previous estimate and above the Dow Jones consensus estimate of 2.9%.

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Consumer spending, which accounts for about two-thirds of all activity in the $29.4 trillion U.S. economy, rose 3.7% in the quarter, 0.2 percentage points faster than the previous estimate.

Eugenio Aleman, chief economist at Raymond James, said the report confirms the Federal Reserve chairman’s assertions earlier this week that “there are no signs of economic weakness at this time.”

Around the markets

In corporate news, the big drivers included:

Micron (MU): The chip company forecast quarterly sales and profit that were below estimates.

Accenture (ACN): The IT service provider beat Wall Street’s first-quarter revenue estimates.

Lennar (LEN): The homebuilder reported weaker-than-expected profits for the final quarter of its fiscal year

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