Wall Street closes lower following FOMC decision

US stocks experienced a decline on the last trading day in January, as the Federal Reserve held interest rates steady and drew hopes for an interest rate cut as soon as March.

The three major US stock indexes were already weighed down by weakness in tech and tech-adjacent megacap stocks the day after disappointing Alphabet’s results. All three indexes extended losses after the Fed’s announcement and Chair Jerome Powell’s subsequent press conference.

The FOMC left its key policy rate unchanged at 5.25%-5.50% against a backdrop of gradually cooling inflation and a resilient economy. The FOMC said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” disappointing investors who had hoped for a quick dovish pivot.

The Dow Jones Industrial Average fell 317.01 points, or 0.82%, to 38,150.30, the S&P 500 lost 79.32 points, or 1.61%, to 4,845.65, and the Nasdaq Composite lost 345.88 points, or 2.23%, to 15,164.01. All 11 major US stock indexes ended red, with communication services and tech shares suffering the largest percentage losses.

Q4 earnings season has shifted into overdrive, with nearly one in five companies in the S&P 500 slated to report this week. Analysts now see aggregate fourth quarter S&P 500 earnings growth of 6.1% year-on-year, an improvement over the 4.7% forecast at the end of the quarter. Alphabet shares slid 7.5% the day after Google’s parent reported disappointing ad sales and projected an increase in capital spending to boost its artificial intelligence capabilities.
Shares of New York Community Bancorp tumbled 37.7%, touching their lowest level in over two decades after posting a surprise loss and slashing its dividend. The KBW Regional Bank index slid 6.0%.

A spate of economic indicators released on Wednesday, including fourth quarter employment costs and ADP’s employment index, suggested some easing in the labor market, viewed by the Fed as a necessary precondition for bringing inflation down to its 2% annual target.

On the Nasdaq 1,136 stocks rose and 3,160 fell as declining issues outnumbered advancers by about a 2.8-to-1 ratio. The S&P 500 posted 59 new 52-week highs and 3 new lows while the Nasdaq recorded 132 new highs and 125 new lows.

Volume on US exchanges was relatively heavy, with 13.3 billion shares traded, compared to an average of 11.5 billion shares over the previous 20 sessions.