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US stocks fall after Federal Reserve cuts key interest rate

Posted on Wednesday, July 31st, 2019 By Alex Veiga, AP Business Writer

Major U.S. stock indexes are falling Wednesday after the Federal Reserve cut its key interest rate for the first time in a decade.

In a widely expected move, the central bank announced a quarter-point cut in its benchmark interest rate, which affects many loans for households and businesses.

Some on Wall Street had believed the Fed might act more aggressively in cutting rates by half a percentage point rather than the quarter-point cut it wound up making. The smaller cut prompted investors to send stocks lower and bond yields higher.

The Fed also repeated a pledge to "act as appropriate to sustain the expansion," wording that the financial markets have interpreted as a signal for possible future rate cuts.

The central bank hopes the rate cut will counter threats to the U.S. economy ranging from uncertainties caused by the nation's trade disputes to chronically low inflation and a dimming global growth outlook.

Stocks wobbled slightly in the moments after the Fed's announcement at 2 p.m. Eastern Time, then turned lower about half an hour later. Prices of short-term U.S. government bonds fell after the announcement, sending yields higher.

"There are certainly advantages to telegraphing a major change in interest rate policy, and this cut was certainly that as it was the first cut in over 10 years," said Chris Gaffney, president of World Markets, TIAA Bank. "But Chairman Powell will probably want to open up the (Fed policymakers') options for the remainder of the year."

Losses in consumer-focused companies, materials stocks and banks outweighed gains in energy, real estate and other sectors.

In addition to keeping an eye on the Fed, investors have been absorbing a heavy flow of corporate earnings amid concerns about trade and economic growth. Companies are about midway through the earnings reporting season, and results have generally been better than the dismal expectations that analysts had coming into it.

KEEPING SCORE: The S&P 500 index was down 1.5% as of 2:53 p.m. Eastern time. The Dow Jones Industrial Average dropped 425 points, or 1.6%, to 26,765. The Nasdaq composite fell 1.8% and the Russell 2000 index of smaller companies fell 0.9%.

Major stock indexes in Europe were mixed.

Stocks have been mostly pulling back after setting records last week.

FED RATE CUT: Investors had been expecting a rate cut after Fed officials signaled in recent weeks their readiness to take action to help shore up the U.S. economy, which faces threats to growth from the prolonged trade war with China.

The central bank cut its benchmark rate by a quarter-point to a range of 2% to 2.25%. It's the first rate cut since December 2008 during the depths of the Great Recession, when the Fed slashed its rate to a record low near zero and kept it there until 2015. After that, the Fed went on to make nine quarter-point rate increases from December 2015 to December 2018.

The economy is far healthier now than it was in 2008, despite risks to what's become the longest expansion on record.

Traders are betting the rate cut could help give the economy, and stock prices, a boost. It would help lower rates on consumer and business loans, which would encourage borrowing and possibly energize the economy.

The 10-year Treasury yield fell to 2.03% from 2.06% late Tuesday. The two-year yield, which is more influenced by the Fed's movements, rose sharply, to 1.87% from 1.83%.

CRISP RESULTS: Apple rose 3.9% after beating Wall Street's profit and revenue forecasts for the quarter while slamming the brakes on the decline of iPhone sales in China.

Sales of the company's best-known product are still sputtering, but the company has seen increasing revenue contributions from digital services, such as music. The decline of iPhone sales in China slowed drastically during Apple's third quarter to a 4% drop. Sales of the iPhone plunged 25% during the first half of the company's fiscal year.

NOT PLAYING AROUND: Electronic Arts climbed 4.9% after the video game maker's fiscal first quarter revenue beat Wall Street forecasts.

PANCAKED: IHOP and Applebee's owner Dine Brands Global fell 5.2% after slashing its financial forecast for the year. The company cut forecasts for sales at existing Applebee's and IHOP locations, along with overall profit, following a disappointing second quarter earnings report.

CLOGGED TAP: Molson Coors Brewing slid 6.4% after the company reported a global decline in volume and sales during the second quarter that weighed down profit. The maker of Molson and Coors fell short of analysts' profit and revenue forecasts. It faced weaker demand in May and June.

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AP Business Writer Damian J. Troise contributed to this report.

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