What Happened?
A number of stocks fell in the afternoon session after the Federal Reserve cut its benchmark interest rate by a quarter-point, while signaling one rate cut in 2026 which was lower than expected.
The widely anticipated move put the new target range for the federal funds rate at 4% to 4.25%. Policymakers cited a weakening labor market and moderating economic growth as the primary reasons for the cut, signaling a shift in their approach to support the economy. However, they also noted that inflation "has moved up and remains somewhat elevated," creating a conflict as the committee balances its dual mandate of stable prices and full employment.
Investors continued to look for clues on the pace of future rate cuts as the Fed tries to balance a slowing job market with ongoing inflation. Most Fed Committee members have indicated they expect two more cuts for the year.
The Fed's "dot plot" also suggests a much slower pace of cuts than the market currently anticipates. With only one cut implied for 2026 compared to the three that traders priced in, this explained the market pullback after the initial spike that followed the rate cut announcement.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Home Construction Materials company Quanex (NYSE: NX) fell 3.9%. Is now the time to buy Quanex? Access our full analysis report here, it’s free.
- Home Construction Materials company Hayward (NYSE: HAYW) fell 2.7%. Is now the time to buy Hayward? Access our full analysis report here, it’s free.
- Home Construction Materials company Fortune Brands (NYSE: FBIN) fell 2.9%. Is now the time to buy Fortune Brands? Access our full analysis report here, it’s free.
Zooming In On Quanex (NX)
Quanex’s shares are very volatile and have had 24 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 8 days ago when the stock dropped 4.8% as concerns about the health of the U.S. economy grew following a significant downward revision of job market data.
The Labor Department reported that employers added 911,000 fewer jobs from April 2024 through March than initially estimated. These "benchmark revisions" are issued annually to more accurately account for new and defunct businesses. The report detailed that the leisure and hospitality sector added 176,000 fewer jobs, professional and business services 158,000 fewer, and retailers 126,000 fewer. This weaker-than-expected data has fueled investor anxiety, as it suggests businesses may be becoming more reluctant to hire amid economic uncertainty. The numbers issued are preliminary, with final revisions scheduled for February 2026.
JPMorgan Chase CEO Jamie Dimon added that the U.S. economy is "weakening," though he stopped short of predicting a recession. "Whether it's on the way to recession or just weakening, I don't know," he said. Dimon's remarks are closely watched, given his influence as head of one of the nation's largest banks.
Quanex is down 37.8% since the beginning of the year, and at $14.63 per share, it is trading 53.6% below its 52-week high of $31.51 from November 2024. Investors who bought $1,000 worth of Quanex’s shares 5 years ago would now be looking at an investment worth $815.95.
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