Stock Market Update

[BRIEFING.COM] The stock market saw mixed action today leading up to and in response to the FOMC's decision to cut the Fed funds rate target range by 25 basis points, with mega-cap weakness stifling index-level growth despite broader strength. 

If someone had taken a glance at the market just after the open and then logged off until the close, they would assume that an uneventful session had taken place, as the major averages finished similar to how they started.

Barring a pocket of increased volatility that followed the FOMC announcement, that assumption would be largely correct. The initial spike in reaction to the announcement, however, sent the DJIA (+0.6%) to a new all-time high level of 46,261.95 and brought the S&P 500 (-0.1%) within three points of its own record high. Even the Nasdaq Composite (-0.3%) climbed back to its flatline before a sharp sell-off sent the major averages to session lows.

While today's decision brought about a short period of volatility, the 25-basis point cut had been fully priced in for some time. Market participants were arguably more eager to see how the results of the FOMC meeting would shape expectations for further easing. 

Officials remain split on the number of additional cuts this year, with nine of the 19 participants projecting just one more, ten favoring two, and one signaling no further cuts at all.

Despite differing opinions on the number of rate cuts the market will receive this year, today's meeting still increased the probability of their happening.

The CME FedWatch tool now assigns an 89.9% probability of at least a 25-basis point rate cut at the October 29 FOMC meeting, up from 78.2% yesterday. Similarly, the odds of an even further rate cut of at least 25 basis points at the December 10 meeting now stand at 83.9%, up from 72.8% yesterday.

While rate cut expectations through the end of the year at least temporarily solidified, sentiments have shifted about further easing in 2026. The 2026 median projection sees only one rate cut in 2026 versus the three rate cuts that had been priced into the Fed funds futures market.

Ultimately, the market took all of these developments in stride, shaking off the afternoon volatility and finishing in a familiar mixed fashion.

The information technology (-0.7%), industrials (-0.5%), consumer discretionary (-0.3%), communication services (-0.1%), and real estate (-0.1%) sectors finished lower, with mega-cap names coming under pressure for the duration of the day. NVIDIA (NVDA 170.29, -4.59, -2.62%) had a particularly rough session as the Financial Times reported the Chinese government has asked domestic companies to stop purchasing NVIDIA's products.

The Vanguard Mega Cap Growth ETF finished with a 0.4% loss, and the S&P 500 Equal Weighted Index (+0.1%) outperformed the market-weighted S&P 500 (-0.1%), though by a substantially slimmer margin than earlier levels. 

Smaller-cap names outside of the S&P 500 also saw some of their strength eroded following the FOMC announcement, as the Russell 2000 (+0.2%) and S&P Mid Cap 400 (-0.2%) both finished well beneath session highs that saw the indices hold earlier gains wider than 1.0%. 

Elsewhere, the financials (+1.0%) and consumer staples (+0.9%) were the top beneficiaries of today's action, while four other sectors closed with more modest gains. 

Separately, StubHub Holdings (STUB 22.00, -1.50, -6.38%) drew solid interest, pricing at $23.50 vs. the $22-$25 expected range and opening for trading with an 8% gain at $25.35, before finishing the day on a lackluster note at beneath its offering price. 

While the Fed confirmed more easing is on the horizon, the pace beyond this year remains in doubt, ensuring monetary policy will stay a central driver of market action into year-end.

U.S. Treasuries endured some midweek volatility surrounding the expected FOMC rate cut announcement before ending the session at their lowest levels of the day. The 2-year note yield settled up four basis points to 3.55%, and the 10-year note yield settled up five basis points to 4.08%. 

• Nasdaq Composite: +15.3% YTD
• S&P 500: +12.2% YTD
• DJIA: +8.2% YTD
• Russell 2000: +8.0% YTD
• S&P Mid Cap 400: + 4.7% YTD

Reviewing today's data:

• Total housing starts declined 8.5% month-over-month in August to a seasonally adjusted annual rate of 1.307 million (Briefing.com consensus: 1.375 million) from a revised 1.429 million (from 1.428 million) in July. Building permits declined 3.7% month-over-month to a seasonally adjusted annual rate of 1.312 million (Briefing.com consensus: 1.370 million) from an unrevised 1.362 million in July.
  • The key takeaway from the report is the weakness in single-unit starts (-7.0% month-over-month) and single-unit permits (-2.2%), which is a reflection of affordability constraints for builders and prospective homeowners alike. Strikingly, single-unit starts in the South—the nation's largest homebuilding region—plunged 17.0% in August.
• The weekly MBA Mortgage Index jumped 29.7% to follow last week's 9.2% increase. The Refinance Index spiked 57.7% while the Purchase Index was up 2.9%.