After a jittery day of trading, major U.S. stock indexes ended down Wednesday while smaller companies fared better. The Federal Reserve raised interest rates, as investors expected, and said it could raise rates at a quicker pace next year.
Stocks rose early in the day and jumped after the Fed announced its decision. The Dow Jones industrial average climbed 250 points but erased that whole gain as new Fed Chairman Jerome H. Powell addressed reporters. At the end of trading it wobbled and ended down. The dollar weakened, and bond yields fell.
The Fed said the U.S. economy and the job market continued to improve over the last two months. It still expects to raise interest rates three times this year and said it might raise rates three more times next year instead of two.
Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management, said Powell is trying to tell Wall Street what the Fed’s plans are without worrying investors too much. He said stocks dropped after Powell said rates might rise higher than the Fed expects.
“The market will have to get to know Jerome Powell a little bit and will have to test his credibility as Fed chairman,” he said. “I would imagine the bar is higher for him in the shorter term because he is not a trained economist,” unlike Janet Yellen and other predecessors.
Small and mid-size companies climbed. Energy companies led the way as oil prices jumped for the second day in a row. Home builders advanced after a report that sales of previously occupied homes increased in February. Cereal and packaged-foods companies slumped after General Mills reported rising expenses and cut its annual profit forecast, and airlines skidded after Southwest said its revenue is suffering as it cuts fares to compete with other companies.
The Standard & Poor’s 500 index fell 5.01 points, or 0.2%, to 2,711.93. The Dow fell 44.96 points, or 0.2%, to 24,682.31. The Nasdaq composite slid 19.02 points, or 0.3%, to 7,345.29. The Russell 2000 index of smaller companies rose 8.90 points, or 0.6%, to 1,579.30.
Bond prices edged down. The yield on the 10-year Treasury note declined to 2.88% from 2.90%. It was briefly up as high as 2.93% as investors expected quicker gains in interest rates.
David Kelly, chief global strategist for JPMorgan Asset Management, said stocks usually do well when interest rates are rising, but only up to a point.
“If interest rates are rising from a low level, there’s more optimism about the economy, and that generally is a more positive thing,” he said. That’s the case right now, but with an important difference: The economy has been growing for almost a decade, and interest rates have been historically low that whole time.
Kelly said the Fed and the government need to be careful to focus on smooth growth, as the recent tax cuts will dump some short-lived stimulus into the economy.
“The overall effect of the tax cut is to deliver another keg to a keg party at 2 a.m.,” he said. “The party is probably going to go a little longer, but the hangover is going to be worse.”
Nine of the 10 biggest gainers in the S&P 500 were energy companies. Some of the biggest gains went to Marathon Oil and Anadarko Petroleum.
Benchmark U.S. crude rose $1.63, or 2.6%, to $65.17 a barrel in New York. Brent crude, used to price international oils, jumped $2.05, or 3%, to $69.47 a barrel in London.
General Mills— the maker of Cheerios cereal, Yoplait yogurt and other packaged foods — plunged 8.9% to $45.51 after its third-quarter results were hurt by rising freight and commodity costs. The company also cut its annual profit outlook. Shares of companies including Kellogg, J.M. Smucker and Post Holdings also fell.
Facebook erased early losses, ending the day up 0.7% at $169.39. The stock fell 9% on Monday and Tuesday after reports that a data mining firm working for President Trump’s campaign took data from the accounts of 50 million Facebook users without their permission. Authorities in Britain and the U.S. launched investigations into Facebook’s handling of user data.
Social media companies Twitter and Snap also regained a portion of their recent losses. Last week, Snap’s stock fell after pop star Rihanna called on her fans to delete the Snapchat app after it ran an ad for a game that made jokes about her assault in 2009 by her then-boyfriend Chris Brown. Snap apologized for the ad.
MuleSoft climbed 5.3% to $44.24 after the software developer agreed to be bought by Salesforce.com for $44.89 a share, or $5.9 billion. Salesforce fell 2.7% to $121.70.
Wholesale gasoline rose 5 cents to $2.01 a gallon. Heating oil rose 5 cents to $2 a gallon. Natural gas fell 4 cents to $2.64 per 1,000 cubic feet.
Gold rose $9.60 to $1,321.50 an ounce. Silver jumped 23 cents, or 1.4%, to $16.42 an ounce. Copper rose 2 cents to $3.06 a pound.
The dollar fell to 106.10 yen from 106.46 yen. The euro rose to $1.2332 from $1.2253.
The CAC 40 in France declined 0.2% and Britain’s FTSE 100 fell 0.3%. Germany’s DAX finished with a small gain.
Hong Kong’s Hang Seng index erased earlier gains to end down 0.4%. South Korea’s Kospi finished little changed. Markets in Japan were closed for a holiday.
2:25 p.m.: This article was updated with closing prices, context and analyst comment.
1:25 p.m.: This article was updated with the close of markets.
This article was originally published at 7:40 a.m.