SPX: S&P 500 Ticks Lower After Fed’s Rate Cut, Dow Jones Pops 260 Points. Why Divergence?

Broad-based index didn’t really react to the expected cut by the Fed. But its blue-chip peer did, in fact, celebrate the news. Why?

📣 S&P 500 Dives (a Little)

• The S&P 500 index (SPX) drifted lower Wednesday after the Federal Reserve got back to what traders love most – rate cuts. The US central bank trimmed its benchmark interest rate for the first time since December with an expected 25-basis-point cut.
• Was it priced in? Absolutely – as much as 96% of the active traders anticipated it, per the CME FedWatch tool. And that helps explain why the S&P 500 inched lower by 0.1% for its second straight day in the red. Buy the rumor, sell the news?
• The tech-heavy Nasdaq Composite index IXIC was leading the losses, clocking out with a 0.3% daily drop. Earlier this week both indexes notched record closing highs.

🎁 Losers and Winners

• The standout performer in the index space was the Dow Jones Industrial Average DJI. The 30-stock benchmark powered higher by 260 points, or 0.6%, as traders preferred exposure to real-economy companies.
• Technology shares were among the biggest decliners. Those same high flyers that are making all the headlines these days, Nvidia NVDA, Oracle ORCL, Palantir PLTR, all moved lower on the day.
• The biggest gainers? The companies closely tied to economic activity, spending, and consumer behavior. We’re talking retailers and banks. Walmart WMT, JPMorgan JPM, and American Express AXP were all higher to end the cash session.

👀 What Happened?

• The Federal Reserve cut the fed-funds rate by a quarter to 4%-4.25%, citing increasing economic uncertainty, especially around job creation. That’s a big pain point for policymakers – jobs aren’t doing too well.
• Employment makes up about half of the central bank’s mandate. That’s why Fed boss Jay Powell said they’re eyeing two more cuts to borrowing costs by the end of the year. It’s all happening when the US is still into inflation with the August CPI report showing a 2.9% annual increase.
• In short, the delicate balancing act now seeks to position the US economy for growth by lowering interest rates. But on the other hand, this recipe for growth suggests, by definition, that inflation could creep up, because money is more affordable.