Stocks sink after Fed appears to dash hopes of an interest rate cut
Stocks on Wall Street gave up some early gains and ended broadly lower Wednesday after the head of the Federal Reserve appeared to play down the possibility of an interest rate cut this year, disappointing some investors.
The Fed’s decision to leave its benchmark interest rate alone was widely expected and came amid signs of renewed economic health but unusually low inflation. The announcement reaffirmed a message that has comforted investors since the start of the year: No rate hikes are likely anytime soon.
The low-rate policy is helping to keep borrowing costs down and supporting an economy that has been growing steadily since late last year.
“There really wasn’t anything in the Fed statement that should have spooked investors,” said Karyn Cavanaugh, senior markets strategist at Voya Investment Management, adding that a rate cut wouldn’t be an appropriate move against the backdrop of the U.S. economy that grew 3.2% in the first three months of this year and a national unemployment rate below 4%.
“I don’t think investors who were anticipating a rate cut were being very realistic,” Cavanaugh said.
The Standard & Poor’s 500 index slid 22.10 points, or 0.8%, to 2,923.73.
The Dow Jones industrial average fell 162.77 points, or 0.6%, to 26,430.14. The Nasdaq composite fell 45.75 points, or 0.6%, to 8,049.64. The Russell 2000 index of smaller company stocks declined 14.83 points, or 0.9%, to 1,576.38.
The U.S. stock market has been riding high this year, making its way back from its late-2018 nosedive. The Fed spurred the market’s recovery earlier this year when it signaled that it would take a patient approach to raising interest rates.
On Wednesday, the central bank once again reassured investors that it is unlikely to raise rates in coming months, and it expressed a more upbeat view of the economy.
“The Fed action is a positive because it means that rates are going to remain low,” said Tom Martin, senior portfolio manager with Globalt Investments. “And if there was anything that looked like it could be harmful, the Fed is standing ready to consider more accommodation.”
Soon after the Fed issued its statement, stock prices rose modestly and the yield on the 10-year Treasury note, which influences mortgages and some other loans, fell slightly.
But the trajectory for stocks and bonds changed course as Federal Reserve Chairman Jerome H. Powell fielded questions from reporters. At one point he declined to say whether some investors are misguided in expecting the U.S. central bank to trim interest rates this year, something traders had been betting would happen before year’s end.
The U.S. dollar leaped versus other currencies as Powell spoke. Bond prices ended up little changed, with the yield on the 10-year Treasury note holding at 2.50%.
Household goods makers, banks and energy companies took some of the heaviest losses Wednesday. Only real estate stocks eked out a slight gain.
Stocks were moving sideways just before the Fed’s announcement. They rallied earlier in the day as large U.S. companies continued to surprise investors with solid profits.
Apple shares climbed 4.9% after the consumer electronics giant’s first-quarter results beat Wall Street forecasts. Its sales are still shrinking as iPhone demand weakens, however. Still, Apple raised its dividend and signaled that the revenue slide could level off in the current quarter.
Royal Caribbean Cruises jumped 6.7% after the cruise line operator said booking rates and volumes helped push up revenue, along with more demand for onboard activities.
CVS Health climbed 5.4% after the company reported a 42% surge in its quarterly profit, blowing past Wall Street’s forecasts. The nation’s second-largest drugstore chain also raised its profit forecast for the year.
Beer maker Molson Coors slid 7.5% after a slump in volume weighed down revenue. The company reported revenue and profit below Wall Street forecasts.
Earnings reporting season is more than a third of the way through, and the results have been tempering investors’ fears about a severe profit slump. Among companies in the S&P 500, earnings are down about 0.3% so far. That’s far better than the 4% drop expected a few weeks ago.
Energy futures were mixed. Benchmark U.S. crude fell 0.5% to $63.60 a barrel. Brent crude rose 0.2% to $72.18 a barrel.
Wholesale gasoline slipped 0.1% to $2.06 a gallon. Heating oil rose 0.8% to $2.09 a gallon. Natural gas rose 1.7% to $2.62 per 1,000 cubic feet.
Gold slipped 0.1% to $1,284.20 an ounce. Silver fell 1.7% to $14.73 an ounce. Copper slid 3.5% to $2.80 a pound.
The dollar rose to 111.61 yen from 111.37 yen. The euro weakened to $1.1194 from $1.1221.
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