Stock market today: Dow, S&P 500, Nasdaq bounce back from Fed-fueled rout

Markets sold off on Wednesday as Federal Reserve Chair Jerome Powell explained why the central bank is expecting to cut interest rates less than expected.

Wall street investment strategists argue the “hawkish” shift by the Fed from a clear easing bias, to one with more uncertainty over when and how much further rates will be lowered, likely drove the negative sentiment in markets.

“The hawkish turn, plus the fact that we’re starting to get more descent [among officials] now, that uncertainty doesn’t really bode well, especially when you’re heading into a year where there’s just this dramatic policy uncertainty around inflation, but also the labor market,” Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance.

Piper Sandler chief investment strategist Michael Kantrowitz told Yahoo Finance the Fed’s “hawkish tone” was a “extrapolation” of recent moves in the market when few stocks had been rising higher within the S&P 500 as markets had begun pricing in the prospects of higher interest rates and sticky inflation for most of December.

“I would almost describe this as a bit of a light pivot from Powell, certainly from a second derivative,” Kantrowitz said. “And as we know, markets care about derivatives or rates of change in anything.”

Given stock’s roaring bull market rally, and investor sentiment shooting high since Donald Trump’s election win, the “light pivot” from Powell was enough to push markets over the edge.

“It’s sort of a textbook case of you have really euphoric, sometimes somewhat exuberant, sentiment, and then a negative catalyst comes along to tip the market over,” Gordon said. “And that’s exactly what the Fed meeting was.”