U.S. stocks closed mixed on Wednesday as investors digested the prospect of earlier-than-expected interest rate cuts by the Federal Reserve.
The Dow Jones Industrial Average gathered the most gains, although it finished close to the flat line. It edged up 13.44 points, or 0.04, to 35,430.42. Meanwhile, the benchmark S&P 500 dipped 4.31 points, or 0.09 percent, to 4.550.58. The tech-heavy Nasdaq Composite dropped 23.27 points, or 0.16 percent, to 14,258.49.
Anticipations of a policy shift intensified as Fed Governor Christopher Waller suggested that the Fed could suspend rate hikes if inflation shows sustained signs of easing. He hinted at the possibility of near-term rate cuts to create a "soft landing" and avert a recession.
While Fed Governor Michelle Bowman held a dissenting view, other officials aligned with Waller's dovish stance. One of them is Chicago Fed President Austan Goolsbee, who expressed apprehension over keeping interest rates "too high for too long."
Despite the subdued trading, November is shaping to be a strong month for stocks, with the S&P 500 on track for its biggest monthly gain since July 2022.
"The market has had huge returns, so there's certainly profit taking and repositioning; there's some consolidation going on here," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
Bond extended gains on Wednesday, buoyed by these dovish comments. In contrast, the 10-year Treasury yield dropped about six basis points to around 4.27 percent, its lowest since September.
"The economy continues to be relatively strong. There's no reason for the Fed to lower rates and risk a re-emergence of inflation," Ghriskey said.
Rate-sensitive stocks weigh on market
Among the S&P 500's major sectors, real estate and financial sectors were the biggest gainers, both rising around 0.7 percent, while communications services dropped 1.1 percent. Interest rate-sensitive momentum stocks, particularly Microsoft and Apple, weighed heavily on the S&P 500, declining 1.01 percent and 0.5 percent, respectively.
Health insurance giants Humana and Cigna saw their share prices plummet 5.5 percent and 8.1 percent, respectively, following reports of ongoing merger discussions. The potential merger, which would create the largest health insurance company in the US, faces regulatory scrutiny and potential antitrust challenges.
The automotive sector was thriving, as General Motors shares surged 9.4 percent after the automaker announced a $10 billion share buyback and a 33 percent dividend boost. Ford Motor Co. shares also gained 2.1 percent.
CrowdStrike Holdings shares jumped 10.4 percent after the cybersecurity firm's fourth-quarter revenue forecast surpassed analyst expectations. NetApp shares also jumped 14.6 percent after the cloud-based data management platform increased its annual profit forecast.
GDP data influences stocks
Gross domestic product (GDP) data revealed that the economy grew at a robust 5.2 percent annualized rate in the third quarter. The GDP compared to 2.1 percent in the previous quarter. This figure exceeded the 4.9 percent expectations, confirming the economy's resilience despite rising interest rates and inflation.
According to government data, the acceleration in real GDP in the third quarter was driven by a surge in consumer spending, private inventory investment and exports, partially offset by a slowdown in nonresidential fixed investment. Imports also increased.
Yogesh Kansal, co-founder and CMO of fintech platform Appreciate, noted that the increased GDP growth is causing concerns among technology sector investors. They worry that the Fed might postpone potential rate cuts. This could be what drove the decline in the Nasdaq.