• U.S. stocks stabilized on Friday, with the Dow Jones setting a new record, following the Federal Reserve's larger-than-expected interest rate cut.
• Despite mixed reactions to the potential for another rate cut in November, major averages secured weekly gains of at least 1%.
• The Utilities sector surged to a record high, led by a jump in Constellation Energy shares, while FedEx saw a significant drop.
• The market's future trajectory remains uncertain as investors recalibrate their expectations in light of recent developments.

The U.S. stock market experienced a surprising turn of events on Friday, with stocks closing nearly unchanged. This marked a pause in the buying frenzy that had been ignited by the Federal Reserve's larger-than-expected interest rate cut. Despite this pause, the Dow Jones Industrial Average managed to set a new record, thanks in part to a boost from Nike.

The major averages, which had seen their largest daily percentage gains since mid-August, remained subdued for most of the session. However, they managed to secure weekly gains of at least 1%. This pause in buying activity comes after a strong rally in the previous session, which was fueled by an upsized interest-rate cut by the Federal Reserve.

The market's reaction was mixed following comments from Fed Governor Christopher Waller, which raised expectations that the central bank would cut interest rates by 50 basis points at its November meeting. This comes on the heels of a 50 basis point cut on Wednesday.

Fed Governors' Differing Views on Rate Cut

However, fellow Governor Michelle Bowman expressed a preference for a smaller cut. Sid Vaidya, U.S. chief wealth strategist at TD Wealth in New York, explained the market's response. The market is still trying to recalibrate because, yes, there were some market participants that may have expected 50 basis points but a lot of people didn't, he said.

The Dow Jones Industrial Average rose 38.17 points, or 0.09%, to 42,063.36, while the S&P 500 lost 11.09 points, or 0.19%, to 5,702.55. The Nasdaq Composite also saw a decrease, losing 65.66 points, or 0.36%, to 17,948.32.

For the week, the S&P 500 gained 1.36%, the Nasdaq rose 1.49%, and the Dow climbed 1.62%. Markets are fully pricing in a cut of at least 25 bps in November, with expectations for a cut of 50 bps given a 48.9% chance, according to CME's FedWatch Tool.

Sector Performance and Corporate News

The Utilities sector surged 2.69% to a record high, becoming the best-performing of the 11 major S&P sectors. This was led by a 22.29% jump in Constellation Energy shares after the company signed a data-center deal with Microsoft to help resurrect a unit of the Three Mile Island nuclear plant in Pennsylvania.

Intel, another Dow component, saw its shares close up 3.31% after the Wall Street Journal reported that Qualcomm had made a takeover approach to the chipmaker. The Fed began its monetary-easing cycle on Wednesday and projected a period of steady economic growth and low unemployment and inflation.

However, not all news was positive. FedEx plunged 15.23% after lowering its full-year revenue forecast, sending the Dow Jones Transport index down 3.53%, its biggest daily drop since late April 2023. Nike jumped 6.84% after announcing that former senior executive Elliott Hill will rejoin the company to succeed John Donahoe as CEO.

This news came on a day known as triple witching, when options and futures linked to stock indexes and individual stocks expire simultaneously, leading to the heaviest trading-volume day of the year. Historically, equities have performed well in a rate-cutting environment. However, the outlook appears bleak with the S&P 500's valuations high above its long-term average.

As investors recalibrate their expectations in light of recent developments, the market's future trajectory remains uncertain. This recent market activity echoes similar events in history, such as the 2008 financial crisis, reminding us that while the market's movements can be unpredictable, they are never without precedent.