(Bloomberg) — A rally that briefly sent stocks to record highs hit a wall when the Federal Reserve signaled it was in no hurry to ease policy after cutting interest rates by half a point.

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The S&P 500 pared a 1% gain as Jerome Powell warned against assuming big rate cuts would last. While that’s not necessarily a bad thing, as aggressive easing is typically associated with economic stress, traders ultimately pushed stocks toward session lows at the 4 p.m. close in New York.

“After rallying ahead of today’s Fed announcement, it wouldn’t be unreasonable to see the market pull back a bit,” said eToro’s Bret Kenwell. “However, the long-term outlook remains promising. As long as the economy holds up and inflation doesn’t revive, lower interest rates and strong earnings growth could continue to drive stocks higher in the long term.”

Powell told BMO Capital Markets’ Ian Lyngen and Vail Hartman during his press conference that the size of the rate cut was consistent with the message that authorities are not currently concerned about any aspect of the real economy.

“Impressively, in the classic ‘buy the rumor, sell the fact’ dynamic, the ‘fact’ of a 50 basis point cut was still met by selling,” they said, referring to the turnaround in bonds. “Positions are being liquidated and the market is moving back into the mode of trading the incoming economic data with an eye on the potential impact of the presidential race.”

The S&P 500 fell 0.3%. The Nasdaq 100 fell 0.5%. The Dow Jones Industrial Average lost 0.2%. A gauge of the “Magnificent Seven” mega-caps fell 0.1%. The Russell 2000 of small companies was little changed.

Treasury 10-year yields rose six basis points to 3.7%. The dollar rose.

Markets may temporarily experience a “buy the rumor, sell the news” phenomenon, said Florian Ielpo of Lombard Odier Investment Managers. That said, traders should remember how the Fed has transformed from a headwind to a tailwind, he added.

“While most of the possible actions may already be priced in by the bond market, the benefits of easing are difficult to gauge and the equity (and credit) market may underestimate them,” Ielpo said. “The benefits of these cuts will depend heavily on the growth scenario: rising stocks in the absence of a recession, but falling if growth falls short of expectations.”

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According to Chris Larkin of Morgan Stanley’s E*Trade, the markets got what they wanted: a big first rate cut from the Fed.

“The Fed has a well-earned reputation for not rushing, so there is a chance of disappointment if it turns out to be moving too slowly, especially if the economic data continues to deteriorate. But today they delivered,” he added.

The market is now pricing in another 70 basis points of rate cuts at the Fed’s two remaining meetings this year, reflecting a much more aggressive stance than policymakers. Officials on Wednesday forecast just half a point of further easing in 2024. They planned an additional percentage point of cuts in 2025, according to the median forecast.

“Powell made it clear that today’s decision was not a crisis rate cut, but a normalization of monetary policy from a very restrictive level,” said Kristina Hooper of Invesco. “I expect risk assets to perform well in the coming weeks given the Fed’s reassurances – unless future economic data suggests more weakness.”

Jamie Cox of Harris Financial Group says he remains skeptical about the scale of expected rate cuts next year, as more aggressive cuts are associated with crises.

“We expect traditional beneficiaries including small caps, value, cyclical sectors and the balanced-weighted S&P 500 Index to experience tailwinds,” he noted.

Evercore’s Krishna Guha believes the big move will insure a soft landing going forward. It should be especially beneficial for risky assets that are dependent on the cycle, such as small caps, cyclicals, commodities and commodity currencies.

“Despite the skepticism around the economic necessity of an aggressive 50 basis point rate cut, markets can and should celebrate today’s move — and will continue to do so for months to come,” said Seema Shah of Principal Asset Management. “We have a Fed that is going to great lengths to avoid a hard landing. Recession, what recession?”

eToro’s Callie Cox has some advice: “Don’t let the thought of rate cuts scare you.”

“The Fed is cutting to celebrate controlled inflation, not out of desperation,” she said. “Don’t give up on the stock market. We think there’s still a chance that the Fed will save the labor market — and therefore the economy — with lower interest rates. And if that happens, the biggest — and most expensive — risk here is that we miss out on an eventual rally led by the unattractive parts of the market.”

Company highlights:

• A U.S. security commission has given Nippon Steel Corp. permission to resubmit its plans to take over United States Steel Corp. for $14.1 billion, likely delaying a decision on the politically controversial takeover until after the U.S. election in November, people familiar with the matter said.

• Google won a €1.5 billion ($1.7 billion) fine against the European Union for stifling competition in online advertising, partly making up for a crushing defeat last week in a separate ruling on abuse of its monopoly power.

• Qualcomm Inc. lost a lawsuit in the European Union over a multimillion-euro fine over allegations that the U.S. company had set the price of certain chips so low that it would force a smaller competitor out of the market.

• T-Mobile US Inc. on Wednesday outlined its growth ambitions for the next three years, predicting higher profits thanks to customer growth and new technologies including artificial intelligence.

• Anne Wojcicki, co-founder and CEO of 23andMe Holding Co., told employees she remains committed to taking the genetic testing company private after the resignation of its independent directors.

Important events this week:

• UK interest rate decision, Thursday

• US Conf. Board Leads Index, Initial Jobless Claims, Existing Home Sales, Thursday

• FedEx Earnings, Thursday

• Japan Interest Rate Decision, Friday

• Eurozone consumer confidence, Friday

Some of the major moves in the markets:

Shares

• The S&P 500 was down 0.3% at 4 p.m. New York time

• The Nasdaq 100 fell 0.5%

• The Dow Jones Industrial Average fell 0.2%

• The MSCI World Index fell 0.4%

• Bloomberg Magnificent 7 Total Return Index fell 0.1%

• The Russell 2000 Index is little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro remained virtually unchanged at $1.1105

• The British pound rose 0.2% to $1.3187

• The Japanese yen remained virtually unchanged at 142.46 per dollar

Cryptocurrency

• Bitcoin fell 0.1% to $60,055.19

• Ether fell 1.3% to $2,314.6

Bonds

• The yield on 10-year government bonds rose six basis points to 3.7%

• The German 10-year yield rose five basis points to 2.19%

• The UK 10-year yield rose eight basis points to 3.85%

Raw materials

• West Texas Intermediate crude oil fell 1.7% to $70.01 a barrel

• Spot gold fell 0.8% to $2,549.44 an ounce

This story was produced with the help of Bloomberg Automation.

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