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Stocks slip after Federal Reserve raises interest rates

Stocks slip after Federal Reserve raises interest rates
Small replicas of Arturo Di Modica's "Charging Bull" statue are displayed on a street vendor's table outside the New York Stock Exchange. (Mary Altaffer / Associated Press)

U.S. stock indexes slipped Wednesday after the Federal Reserve took the latest step in its campaign to pull interest rates gradually higher.

The decision to raise the federal funds rate for a third time this year was widely expected, and stocks initially climbed following the announcement. But the gains faded in the last 30 minutes of trading after Fed Chairman Jerome Powell finished speaking at a news conference. The sharpest losses came from financial stocks, hurt by a drop in Treasury yields, which can crimp lending profits for banks.

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The Standard & Poor’s 500 index ended the day down 9.59 points, or 0.3%, at 2,905.97; earlier in the day, it was up as much as 0.5%. The Dow Jones industrial average fell 106.93 points, or 0.4%, to 26,385.28. The Nasdaq composite slipped 17.11 points, or 0.2%, to 7,990.37.

Powell said that U.S. economy is in a “particularly bright moment,” which would point to continued increases in rates. But he also said that inflation doesn't seem likely to surge, which would allow the Fed to continue on its gradual path to raise rates off the record lows they set following the 2008 financial crisis.

Investors spent the most energy Wednesday parsing a phrase that the Fed dropped from its written statement following its rate decision, one that has been included for years, about how the central bank is being “accommodative” and keeping rates low. Did that mean the Fed would shade toward being less aggressive or more aggresive?

But Powell said in the news conference that losing the phrase was not a signal of any change in policy expectations.

Investors closely follow every clue about interest rates, which affect the flow of money and the broad economy, because in the past, high rates have been the death knell for economic expansions and bull runs for stocks. But analysts say markets can continue to climb as long as the rise in rates is gradual.

“We have more room to run in this economic cycle,” said Jon Adams, senior investment strategist for BMO Global Asset Management.

The Fed indicated Wednesday that it expects to raise rates one more time this year, three times in 2019 and once in 2020.

Treasury yields slipped Wednesday, a step back from their steady rise this year.

The yield on the 10-year Treasury note fell to 3.05% from 3.10%. It had been close to its highest level since 2011. The two-year Treasury yield, which more closely tracks movements by the Fed, slipped to 2.82% from 2.83%.

Brian Nick, chief investment strategist at Nuveen, said it was puzzling that stocks and bond yields both fell after the Fed's move. Usually, when investors think the Fed is going to become more aggressive about raising interest rates, stocks fall but bond yields rise.

Nick said the reaction may be a result of the new 2021 forecasts the Fed gave for the unemployment rate and GDP growth.

Among stocks in the S&P 500, the biggest drop came from Cintas, which provides workers' uniforms, restroom supplies and other products to companies. Cintas reported better earnings than analysts expected for the latest quarter, but growth in rentals fell short of some forecasts. Its shares slid 5.5% to $201.16.

On the winning side was SurveyMonkey's parent company, SVMK, which surged in its first day of trading. After pricing its initial public offering at $12 per share, SVMK jumped as high as $20 during the morning. It closed at $17.24, up 43.7%.

Benchmark U.S. crude oil slid 1% to $71.57 a barrel. Brent crude, the international standard, fell 0.6% to $81.34 a barrel.

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Wholesale gasoline fell 0.4% to $2.06 a gallon. Heating oil slipped 0.2% to $2.30 a gallon. Natural gas dropped 2% to $3.02 per 1,000 cubic feet.

Gold fell 0.5% to $1,199.10 an ounce. Silver fell 0.6% to $14.40 an ounce. Copper was little changed at $2.83 a pound.

The dollar slipped to 112.85 Japanese yen from 112.93 yen. The euro slipped to $1.1762 from $1.1767. The British pound edged down to $1.3184 from $1.3186.

2:45 p.m.: This article was updated with closing prices, context and analyst comment.

This article was originally published at 7:30 a.m.

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