The S&P 500 slid on Wednesday after the Federal Reserve’s first policy decision of the year, falling 0.47% to close at 6,039.31. The Nasdaq Composite slipped 0.51% to end at 19,632.32. The Dow Jones Industrial Average shed 136.83 points, or 0.31%, finishing at 44,713.52.
Nvidia shares hit their session lows after Trump administration officials discussed limiting the company’s chip sales to China following the emergence of the DeepSeek AI model. Nvidia shares ended the session down 4%, contributing to a more than 13% loss for the week. The Fed left the federal funds rate in a range of 4.25% to 4.50%.
The Fed’s post-meeting statement offered a cautious view on sticky inflation, explaining the decision to pause interest rate changes. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the statement said. “Inflation remains somewhat elevated.”
“The statement was a little hawkish, but policymakers are on hold until the March meeting.
Data between now and then will set the tone for the next big decision,” said David Russell, global head of market strategy at TradeStation. During a press conference following the decision, Fed Chair Jerome Powell mentioned he had concerns given the inauguration of the new administration, which may impact policy and business sentiment. The two have historically had a contentious relationship.
A slew of Big Tech earnings was also anticipated on Wednesday afternoon, adding to market volatility. Following the developments around DeepSeek, UBS’ Solita Marcelli advised investors to be cautious about their approach to investing in artificial intelligence.
Nasdaq dips amid Fed rate pause
“AI is here to stay, and DeepSeek reinforces that,” Marcelli wrote to clients. “Investment approaches that are too concentrated or overly passive can be risky. An active and diversified approach is a better way to gain exposure to AI.”
Mike Dickson, head of research and quantitative strategies at Horizon Investments, noted that the emergence of DeepSeek underscores the varying impacts on tech stocks.
“With this AI theme, there are going to be winners and losers. It’s very powerful technology, and some companies will really benefit,” Dickson said. He expressed concern over the lack of a stronger rebound in stocks hit hard earlier in the week, such as Nvidia and Broadcom.
Seema Shah, chief global strategist of Principal Asset Management, indicated that the market perceived the Fed’s statement as hawkish due to the omission of previous progress towards the 2% inflation goal. The plateauing in inflation improvement means that a rate cut is currently not a desperate requirement, so a pause makes sense,” Shah said. She added that the Fed’s tone could shift to more dovish if the next month’s inflation data softens and job growth weakens.
Shares of major banks and regional banks hit session lows on Wednesday. The SPDR S&P Regional Banking ETF and the SPDR S&P Bank ETF both dropped around 0.9%. JPMorgan Chase and Bank of America pulled back by 0.4% and 0.2%, respectively.
Overall, the market’s performance on Wednesday was influenced by the Federal Reserve’s decision to pause rate cuts, ongoing geopolitical and economic concerns, and the impact of emerging AI technologies like DeepSeek. Investors are advised to stay vigilant and consider diversified investment strategies in the face of market uncertainties.