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Dow Jones wiped out more than 300 points as Fed chairman raises doubts on further rate cuts

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The main indexes on the New York Stock Exchange ended Wednesday trading session with sharp declines, despite the US Federal Reserve’s decision to cut its benchmark interest rate by 25 basis points.

The blue-chip index Dow Jones Industrial Average wiped out 333.75 points, or 1.25%, to a level of 26,864.27 points. The broader S&P 500 fell by 0.64% to 2,994.03 points, while the technology Nasdaq Composite declined by 0.69% to 8,216.13 points.

The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 15.64% to 16.12 a new 1-month high.

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Earlier, the US Federal Reserve lowered its key interest rate by 25 basis points, with bankers stressing that it was not a measure against economic problems, but a way to avoid future ones. The central bank cited “global developments” along with “muted inflation” as reasons for easing monetary conditions. On the background of intense political pressure from President Donald Trump and market expectations, the Federal Open Market Committee lowered the interest rate target on loans from 2% to 2.25%, or 25 basis points from the previous level.

Traders were disappointed that the Fed Governor Jerome Powell was no longer promising cuts and allowed the Dow Jones to crash. The critics of the looser monetary policy, on the other hand, fear that central bankers will inevitably waste the gunpowder they will need in a recession – two members of the Fed’s committee voted against lower interest rates. And let’s not forget the US president who said on Twitter: “As usual, Powell left us in trouble”.

“That refers back to other times when the FOMC has cut rates in the middle of a cycle, and I’m contrasting it there with the beginning of a lengthy cutting cycle. That is not what we’re seeing now, that’s not our perspective now. You have to look at not just the 25 basis-point cut but look at the committee’s actions over the year”, said Jerome Powell. “We started off [the year] expecting some rate increases. We then moved to a patient setting for a few months and now we’ve moved here. As we’ve moved to more accommodative policy, the economy has actually performed as expected with that gradual increase in support”, added he.

Washington, on the other hand, said that China had agreed to increase purchases of US agricultural products during the first round of renewed talks, which ended today.

In bond markets, yields on 10-year and 30-year US Treasuries fell to 2.016% and 2.53%, respectively.

Corporate stocks performance

The stocks of Apple rose by 5% after the company presented profits and revenue that exceeded analysts’ expectations, with its market capitalization approaching 1 trillion USD. During trading, the stocks of the company turned down but ended the session with a gain of 2.04%.

Microsoft Corporation was the worst performer withing the blue-chip index, ending the trading with a loss of 2.91%.

Humana Inc rose 4.6% after the health insurer beat analysts’ second-quarter earnings estimates and hiked its 2019 forecast.

Video game maker Electronic Arts Inc reported better-than-expected quarterly revenue, driven by the continued success of its battle royale game “Apex Legends”, sending its stock up 4.4%.

Among losers, shares of General Electric Co sank by 0.7% after the conglomerate posted a quarterly loss and announced the retirement of its Chief Financial Officer Jamie Miller.

Chipmaker Advanced Micro Devices Inc slumped 10.10% after its disappointing third-quarter revenue forecast, dragging the Philadelphia Semiconductor index down 1.5%.

Molson Coors Brewing Co dropped by 5.15% after weak demand hit its quarterly profits. The beer maker also announced the retirement of Chief Executive Officer Mark Hunter.

The top performers on the S&P 500 were Nordstrom Inc (+7.85%), Aptiv PLC (-7.60%) and Edison International (+6.12%), while on the flipside were Advanced Micro Devices Inc (-10.10%), Maxim Integrated Products Inc (-7.70%) and Micron Technology Inc (-5.42%).

Corporate earnings reports

Nearly 60% of S&P 500 companies reported their quarterly earnings reports, with 76% exceeding market forecasts.

Apple touched new 2019 highs after it reported earnings that beat analysts expectations on both top and bottom lines, but iPhone sales still disappointed investors. Apple booked 25.99 billion USD in iPhone revenue during its fiscal third quarter. That’s down 12% from the year-ago quarter, and 48% of Apple’s overall revenue of 53.8 billion USD. It’s also the first time the iPhone made up less than 50% of quarterly sales since 2012. The wearables business, which includes AirPods, Apple Watch and Beats headphones, brought in 5.53 billion USD. That’s a whopping 48% higher from the year-ago quarter. And the category is now bringing in more revenue than the iPad or Mac businesses. Apple’s new darling, the services business, also showed strong growth. It’s up 13% versus the year-ago quarter with 11.46 billion USD in revenue.

General Electric shares rose Wednesday after second-quarter earnings topped expectations and the battered conglomerate gave a better-than-expected outlook for its industrial cash flow, a key metric watched by investors. GE reported adjusted earnings of 0.17 USD per share, down 6% from the same quarter last year but above the 0.12 USD per share anticipated by analysts. The company also reported revenue of 28.83 billion USD, lower than a year earlier but slightly above the 28.68 billion USD analysts expected. The company raised its forecast for this year’s earnings to a range of 0.55 USD to 0.65 USD per share, up a nickel on both ends from its previous range.