Wall Street managed to recover some of the significant losses it faced on Wednesday following the Federal Reserve’s revised outlook on interest rate cuts for the upcoming year.

The Fed announced a reduction of the short-term federal funds rate by a quarter percentage point on Wednesday, as anticipated, but also adjusted its expectations for rate cuts next year. The central bank now predicts only two rate cuts, each by a quarter percentage point, due to rising inflation concerns. This represents a decline from a previous forecast made in September that included four quarter-point cuts. The change in expectations led to a significant drop in all three major U.S. stock indexes, which experienced their largest one-day declines since August.

“Santa dropped a 25 basis point rate cut into the market’s stocking but left a note mentioning potential challenges ahead next year,” remarked Chris Zaccarelli, chief investment officer for Northlight Asset Management.

By Thursday afternoon, the markets had started to recover slightly. The broad S&P 500 index increased by 0.40%, gaining 23.36 points to reach 5,895.52. Meanwhile, the tech-heavy Nasdaq rose by 0.48%, or 92.31 points, reaching 19,485.01. The blue-chip Dow climbed 0.43%, or 184.02 points, to 42,510.89, aiming to end a 10-day losing streak, the longest since 1974.

Economy remains resilient

The U.S. economy recorded a growth rate of 3.1% on a seasonally adjusted annualized basis from July to September, showing 0.3 percentage point improvement compared to the earlier estimate by the Commerce Department, and exceeding the Dow Jones consensus estimate of 2.9%.

Consumer spending, which constitutes roughly two-thirds of the $29.4 trillion U.S. economy, saw a rise of 3.7% during the quarter, surpassing previous estimates by 0.2 percentage point.

Eugenio Aleman, the chief economist at Raymond James, noted that this report aligns with earlier statements made by the Federal Reserve Chairman about the absence of current signs of economic weakness.

Market updates

In recent company news, notable movements included:

Micron (MU): The semiconductor company projected quarterly revenue and profits to fall below expectations.

Accenture (ACN): The IT services firm exceeded Wall Street forecasts for its first-quarter revenue.

Lennar (LEN): The homebuilder released earnings that were weaker than anticipated for the last quarter of its fiscal year.

Vertex Pharmaceuticals (VRTX): The efficacy of its non-opioid experimental drug showed similar results to a placebo in a mid-stage trial for pain reduction.

Darden Restaurants (DRI): The restaurant chain reported impressive quarterly results and optimistic future outlook.