Stocks were choppy in the lead-up to today's Federal Reserve policy announcement. While the main indexes made a confident move higher after the central bank cut rates by a half-percentage point, a late-day burst of selling pressure sent them into the red at the close.
Ahead of this afternoon's rate-cut decision, data from the Census Bureau showed housing starts increased 9.6% in August from the month prior, to a seasonally adjusted annual rate of 1.356 million. Building permits, which are a better indicator of future construction, were up 4.9% to a seasonally adjusted rate of 1.475 million.
"Lower mortgage rates and the anticipation for substantial Fed easing in the coming months appear to be brightening the outlook for residential construction," says Jackie Benson, economist at Wells Fargo.
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Fed goes big with half-point rate cut
However, Wednesday's main event was the conclusion of the Fed meeting, where the central bank issued its first rate cut in four years, lowering the federal funds rate by 50 basis points (0.50%) to a target range of 4.75% to 5.00%.
In his subsequent press conference, Fed Chair Jerome Powell said that "the labor market is actually in solid condition," and that the central bank's intention with today's jumbo-sized rate cut is "to keep it there."
"A 50 basis-point cut to start the rate-cut cycle is significant because historically, the Fed was playing catch up at the start of rate-cut cycles," says Sonu Varghese, global macro strategist at Carson Group. "The message here is that the Fed's got the labor market's back."
Fed expects to cut rates by another 50 basis points by year's end
The Federal Open Market Committee (FOMC) also issued its quarterly update to the Summary of Economic Projections, or dot plot, which summarizes what each member expects monetary policy to be going forward. According to the projections, the central bank is anticipating the federal funds rate to be 50 basis points lower by year's end, which could equate to two quarter-point rate cuts across both of its remaining meetings.
The Fed's expectation for where the unemployment rate will be at the end of the year is 4.4%, up from June's forecast of 4.0%. In the August jobs report, the unemployment rate was at 4.2%.
For more on today's Fed meeting and rate-cut announcement, be sure to check out Kiplinger's live Fed blog.
Needham analyst sees major upside for SMCI stock
In single-stock news, Super Micro Computer (SMCI) stock slipped 0.6% after Needham analyst Quinn Bolton initiated coverage on the artificial intelligence (AI) server, software and infrastructure company with a Buy rating and a $600 price target, representing implied upside of 37% to Wednesday's close.
SMCI is a "first mover in the design of GPU-based compute systems and liquid-cooled rack-level solutions," Bolton says. "We view Super Micro as a significant beneficiary from growing investment in AI infrastructure and forecast a revenue compound annual growth rate (CAGR) in excess of 55% from fiscal year 2021 to fiscal year 2026."
Microsoft and BlackRock team up to invest in AI infrastructure
Elsewhere, Microsoft (MSFT, -1.0%) and BlackRock (BLK, +2.0%) announced a new partnership alongside two other firms to invest up to $100 billion in AI infrastructure, primarily data centers and the energy infrastructure required to power them.
"Mobilizing private capital to build AI infrastructure like data centers and power will unlock a multi-trillion-dollar long-term investment opportunity," said BlackRock CEO Larry Fink in a statement. "Data centers are the bedrock of the digital economy, and these investments will help power economic growth, create jobs, and drive AI technology innovation."
UAW to hold strike authorization votes at Stellantis
Stellantis (STLA) stock rose 0.8% even after the United Auto Workers (UAW) said the union will hold strike authorization votes at one or more of the automaker's local chapters in the coming days.
STLA failed to hold up its end of a 2023 contract, according to UAW President Shawn Fain. "In our 2023 negotiations, we secured $19 billion in product & investment commitments from Stellantis… And now they are admitting they do NOT plan to honor those plans," Fain said Tuesday in a Facebook livestream. "We are 100% within our rights and within our power to take strike action if necessary."
As for the main indexes, the Dow Jones Industrial Average closed Wednesday down 0.3% at 41,503, the S&P 500 fell 0.3% to 5,618, and the Nasdaq Composite shed 0.3% to 17,573.
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