The stock market got exactly what it wanted from the Fed

• The Fed just issued its first rate cut in four years.

• Shares immediately rose to record highs after the announcement before closing lower.

• The major indices remained resilient near all-time highs, despite a jumbo cut already being priced in.

Stocks hit an intraday high on Wednesday after the Federal Reserve issued its first rate cut of 2020.

The major indexes then faltered all the way to the finish, dipping lower during Fed Chair Jerome Powell’s question-and-answer session. But their resistance to within striking distance of all-time highs suggested this was the ideal outcome for equity investors, especially with a jumbo discount already in place.

“The Fed gave the market what it was looking for with the larger 50 basis point rate cut,” Joel Kruger, market strategist at LMAX Group, said in a statement.

The result also matched what Morgan Stanley strategists pointed out earlier this week as the best-case scenario for stocks: a 50-basis-point cut that didn’t spook the market on economic growth.

But perhaps foreshadowing the subsequent move lower during Powell’s Q&A, Kruger added:

“Our concern here will be the ability of the market to continue to feel good about buying risk assets on future Fed accommodative gestures, now that accommodation has been priced to that extent.”

Here’s where US indices stood at the closing bell at 4pm on Wednesday:

Stocks have historically reacted well to Fed rate cuts. Since 1971, the first Fed tapering resulted in positive returns for investors 100 percent of the time over the next six months, with an average gain of 13 percent, according to Fundstrat’s Tom Lee.

Going forward, investors will be tuned into new economic data releases for signs that the Fed’s rapid rate moves have averted a recession.

“Future data will matter more to markets,” wrote Priya Misra, portfolio manager at JP Morgan Asset Management, following the decision. “All we needed today was for Powell to validate market expectations that the Fed recognizes downside risks to the labor market and is responding appropriately.”

Wednesday’s rate decision was also significant as it confirmed that the central bank has shifted its primary focus.

“The Fed is more concerned about the labor market and less concerned about inflation right now,” said Jason Pride, head of investment strategy and research at Glenmede.

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