U.S. stock indexes dipped 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.
The S&P 500 fell 9.59 points, or 0.3 percent, to 2,905.97 after being up as much as 0.5 percent earlier in the day. The Dow Jones industrial average fell 106.93, or 0.4 percent, to 26,385.28, and the Nasdaq composite lost 17.11, or 0.2 percent, to 7,990.37.
Powell said that the 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 spike, 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 over 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?
But Powell said in the press 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 high rates in the past have been the death knell for economic expansions and bull runs for stocks. But analysts say markets can continue to climb as long as this 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 dipped on Wednesday, a step back from their steady rise this year.
The yield on the 10-year Treasury note fell to 3.05 percent from 3.10 percent late Tuesday. It had been close to its highest level since 2011. The two-year Treasury yield, which more closely tracks movements by the Fed, dipped to 2.82 percent from 2.83 percent.
Brian Nick, chief investment strategist at Nuveen, said that it was puzzling that both stocks and bond yields fell following 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. The company reported better earnings for the latest quarter than analysts expected, but growth in rentals fell short of some forecasts. Cintas lost $11.80, or 5.5 percent, 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 of stock at $12 per share, SVMK jumped as high as $20.00 during the morning. It closed at $17.24, up 43.7 percent.
In markets abroad, European indexes were mostly steady. France’s CAC 40 added 0.6 percent, while Germany’s DAX rose 0.1 percent. Britain’s FTSE 100 was also up 0.1 percent.
In Asia, Japan’s Nikkei 225 rose 0.4 percent, and the Hang Seng in Hong Kong jumped 1.2 percent.
Benchmark U.S. crude oil fell 1 percent to $71.57 per barrel. Brent crude, the international standard, lost 0.6 percent, to $81.34.
In other energy trading, wholesale gasoline fell 0.4 percent to $2.06 a gallon, heating oil slipped 0.2 percent to $2.30 a gallon and natural gas dropped 2 percent to $3.02 per 1,000 cubic feet.
Gold dropped 0.5 percent to $1,199.10 an ounce. Silver fell 0.6 percent to $14.40 an ounce and copper was little changed at $2.83 a pound.
The dollar dipped to 112.85 Japanese yen from 112.93 yen late Tuesday. The euro slipped to $1.1762 from $1.1767, and the British pound fell to $1.3184 from $1.3186.