U.S. stocks closed lower on Wednesday after the Federal Reserve paused its rate cuts in the first policy decision of the year. The S&P 500 fell 0.47% to 6,039.31, the Nasdaq slipped 0.51% to 19,632.32, and the Dow Jones Industrial Average shed 136.83 points to 44,713.52. Nvidia shares experienced a significant dip, ending the session down 4% and dropping more than 13% for the week.
This followed a Bloomberg News report that Trump administration officials have discussed curbing the company’s chip sales to China after the emergence of the DeepSeek AI model. The Federal Reserve kept the federal funds rate in a range of 4.25% to 4.50%. The Fed’s post-meeting statement presented a cautious outlook on inflation, noting that “inflation remains somewhat elevated” despite solid labor market conditions.
David Russell, global head of market strategy at TradeStation, commented, “The statement was a little hawkish, but policymakers are on hold with a long break until the March meeting. Data between now and then will set the tone for that next big decision.”
During a press conference, Fed Chair Jerome Powell noted the impact of new political dynamics following President Trump’s comments at the World Economic Forum in Davos, Switzerland.
Fed decision impacts stock performance
UBS’ Solita Marcelli advised investors to adopt an active and diversified approach to AI investing, emphasizing the importance of monitoring earnings results from tech companies and being prepared for market volatility. Mike Dickson, head of research and quantitative strategies at Horizon Investments, highlighted the bifurcation within top-market stocks, stating, “With this AI theme, there’s going to be winners and losers. It’s a very powerful technology, and therefore some companies will benefit significantly.”
The omission of inflation progress from the Fed’s latest statement was seen as a hawkish signal by investors.
Seema Shah, chief global strategist of Principal Asset Management, pointed out that the market is interpreting this as a signal that the Fed may not cut rates anytime soon. Shares of major and regional banks fell to session lows after the Federal Reserve’s decision, with the SPDR S&P Regional Banking ETF and the SPDR S&P Bank ETF each dropping around 0.9%. Stocks hovered near the lows of the session as investors awaited the press conference from Fed Chair Powell.
By 2:20 p.m. ET, the S&P 500 led the decline among the three main indexes with a 1.1% drop, while the Nasdaq and the Dow were down approximately 0.5% and 0.8%, respectively. Despite increased market jitters due to rising tariff threats, UBS remarked that there is still potential for stock gains, stating, “While market volatility is expected, opportunities for gains remain.”
Overall, investors are advised to stay vigilant and adapt their strategies as economic conditions and market sentiments continue to evolve.
