U.S. equities saw a slight increase on Wednesday after the Federal Reserve maintained its primary interest rate as anticipated, yet simultaneously cautioned regarding escalating risks to the U.S. economy.

The S&P 500 advanced by 0.4%, recovering from a two-day decline that had interrupted its nine-day winning sequence, while the Dow Jones Industrial Average increased by 284 points, or 0.7%, and the Nasdaq composite saw a 0.3% rise.

Throughout the day, stock market indices fluctuated significantly, with the Dow temporarily rising by as much as 400 points due to optimism that the United States and China might initiate preliminary steps towards a trade agreement aimed at safeguarding the global economy. The escalating trade dispute between these two major world economies, marked by mutually imposed and increasing tariffs on imports, has raised concerns that a failure to facilitate freer trade could potentially trigger a recession.

The announcement of important talks between the U.S. and China in Switzerland this weekend made people more hopeful at first. However, some of that hope faded after President Donald Trump said he would not lower his 145% taxes on Chinese products to start the talks. China, on the other hand, has said that lowering these taxes is a necessary condition for trade talks to happen, and these meetings are meant to help start those talks.

The intermittent nature of tariff-related uncertainty has contributed to significant fluctuations within the U.S. economy, notably a surge in imports aimed at pre-empting potential duties. Despite these fluctuations and surveys indicating increasing pessimism among U.S. households regarding the future, the Federal Reserve maintains its assessment that the economy is currently operating "at a solid pace."

Fed Chair Jerome Powell stated that this gives the central bank time to wait before changing interest rates, even though Trump has been pushing for faster cuts to boost the economy.

"There's a lot we don't know," Powell said. So, like everyone else on Wall Street and around the world, the Fed is waiting to see what really happens with Trump's trade war and if his tariffs, which were much stronger than expected, will have the effect he planned.

This is especially evident as the trade dispute appears to be entering a "new phase," according to Powell, where the United States is engaging in more extensive trade discussions with other nations.

Undeniably, the Federal Reserve also indicated its awareness of the escalating risks to the economy stemming from tariffs, which could potentially undermine employment and fuel inflationary pressures.

Powell stated that if the significant tariff hikes recently declared are maintained, they will likely trigger increased inflation, slower economic growth, and higher unemployment.

This situation could eventually lead the Federal Reserve into a bad situation called “stagflation.” This is when the economy is not growing, but prices are still going up a lot. It's a difficult problem because the Fed doesn't have good ways to fix it. If they try to lower interest rates to help the economy and jobs, it could make inflation even worse. But if they raise rates, it would hurt economic growth.

Concurrently, major American corporations persist in generating more substantial profits for the initial part of 2025 than projected by financial analysts.

Following a significant outperformance against analysts' profit expectations, along with an increased profit projection and the acquisition of over a million new streaming subscribers, The Walt Disney Co. experienced a 10.8% surge.

However, businesses persist in expressing caution regarding how economic instability exacerbates the challenge of accurately predicting their financial outlook.

Marvell Technology, a chipmaker, experienced an 8% decline in its stock price following the postponement of its investor day from June to an unspecified future date, citing economic uncertainty.

In summary, the S&P 500 increased by 24.37 points, reaching 5,631.28, while the Dow Jones Industrial Average saw an increase of 284.97 points, closing at 41,113.97, and the Nasdaq composite advanced by 48.50, finishing at 17,738.16.

In the bond market, Treasury yields declined after the Federal Reserve's announcement, with the yield on the 10-year Treasury decreasing to 4.27% from 4.30% at the close of trading on Tuesday.

European markets largely experienced declines, while their Asian counterparts saw gains. Indexes in Hong Kong advanced by 0.1% and in Shanghai by 0.8%, following Beijing's implementation of interest rate reductions and other measures aimed at bolstering the Chinese economy and markets, as elevated tariffs imposed by Trump adversely impacted the nation's exports.