U.S. stock indexes overcame a wobble to close mostly higher Wednesday after the Federal Reserve said it would start reducing its huge bond portfolio next month and was still on track to raise interest rates later this year.
The central bank's announcement drove bond yields higher, lifting shares of banks and other financial firms. Banks benefit from higher bond yields because it means they can charge higher interest rates on loans.
High-dividend stocks, such as utilities and household goods makers, fell. Income-seeking investors find those stocks less appealing when bond yields move up.
"The announcement was pretty much in line with what was expected," said David Chalupnik, head of equities at Nuveen Asset Management. "So far, the market is taking it in stride, but I don't know if it should. This will slowly impact growth."
The Standard & Poor's 500 index inched up 1.59 points, or 0.1%, to 2,508.24. The Dow Jones industrial average rose 41.79 points, or 0.2%, to 22,412.59. The modest gains nudged both indexes to record highs, extending a run of milestones that stretches back to last week.
The Nasdaq composite fell 5.28 points, or 0.1%, to 6,456.04. The Russell 2000 index of smaller-company stocks advanced 5.02 points, or 0.4%, to 1,445.42.
Trading on Wall Street had been mostly subdued this week before the Fed's announcement.
Fed policymakers decided to leave the central bank's short-term benchmark interest rate at 1% to 1.25%, but also said they still expect to raise the rate one more time this year and three times in 2018, if persistently low inflation rebounds.
The Fed has modestly raised the rate four times since December 2015 after keeping it at a record low for seven years after the 2008 financial crisis.
In addition, the Fed said that next month, it will begin to gradually unwind its $4.5-trillion balance sheet. The portfolio consists primarily of government and mortgage-backed bonds. The move will gradually increase long-term borrowing rates.
The prospect of another Fed rate increase this year at a time when the U.S. economy is growing modestly and may slow somewhat from the effects of hurricanes Harvey and Irma, could be bad news for stocks the next few weeks, Chalupnik said.
"At least over the near term, probably between now and the end of October, the market is at risk," he said. "And it's at risk because of lower economic numbers, higher interest rates and earnings that, on an individual-company basis, could disappoint if they were impacted by hurricanes Harvey and Irma."
After the announcement, bond prices slumped, sending the yield on the 10-year Treasury note down to 2.27% from Tuesday's 2.25%.
Investors also bid up shares in banks and other financial companies, which led the gainers. Zions Bancorporation climbed 1.6% to $45.11. Raymond James Financial rose 1.4% to $82.32.
The Fed statement also sent the dollar higher against other currencies. The dollar rose to 112.38 yen from 111.50 yen. The euro fell to $1.1885 from $1.1997.
Technology companies were among the biggest decliners. Qorvo slid 5.4% to $70.32.
Adobe Systems slumped 4.2% to $149.96. The business software company posted solid quarterly results, but investors were concerned about the performance of its cloud business.
Western Digital fell 4% to $86.37 after Toshiba, Western Digital's partner, said it approved a deal to sell its chip business to Bain Capital. Western Digital had wanted to buy it.
Traders also sold off several packaged-food companies after General Mills' latest quarterly results fell short of Wall Street's expectations. The cereal maker sank 5.8% to $52.17. Kellogg fell 1.8% to $64.72. Campbell Soup fell 1.7% to $46.51.
Bed Bath & Beyond plunged 15.9% to $22.74 after the home goods retailer reported that its latest quarterly sales at stores open at least a year, a key metric for retailers, fell short of analysts' forecasts.
Investors also weighed new data on the U.S. housing market that showed sales of previously occupied homes fell 1.7% in August. Over the last 12 months, U.S. home sales have risen only 0.2%. The report from the National Assn. of Realtors pulled down home builder shares. CalAtlantic Group fell the most, declining 2.7% to $34.60.
Energy companies rose along with the price of crude oil. Chesapeake Energy climbed 3.7% to $4.19.
Benchmark U.S. crude climbed 93 cents, or 1.9%, to $50.41 a barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, jumped $1.15, or 2.1%, to $56.29 a barrel in London.
Wholesale gasoline was little changed at $1.66 a gallon. Heating oil rose 3 cents to $1.81 a gallon. Natural gas fell 3 cents to $3.09 per 1,000 cubic feet.
Gold rose $5.80 to $1,316.40 an ounce. Silver rose 6 cents to $17.33 an ounce. Copper stayed at $2.97 a pound.
Markets overseas were mixed. Germany's DAX and the CAC 40 in France both rose 0.1%. The FTSE 100 index of leading British shares was flat. In Asia, Japan's Nikkei 225 edged up 0.1%, South Korea's Kospi fell 0.2%, and Hong Kong's Hang Seng index rose 0.4%. Australia's S&P/ASX 200 slipped 0.1%.
2:55 p.m.: This article was updated with closing prices, context and analyst comment.
1:15 p.m.: This article was updated with the close of markets.
8:55 a.m.: This article was updated with market prices, context and analyst comment.