U.S. stocks closed mostly lower Wednesday, failing to defend gains on the back of the Federal Reserve’s decision to keep key interest rates unchanged, as widely expected.
The central bank also signaled no further rate hikes this year, in line with its views of tame inflation and slower economic growth. But the Fed’s latest stance battered financial shares as the industry tends to suffer in a low-rate environment.
How did the benchmarks fare?
The Dow Jones Industrial Average DJIA, -0.55% fell 141.71 points, or 0.6%, to 25,745.67. The S&P 500 index SPX, -0.29% shed 8.34 points, or 0.3%, to 2,824.23 with the financial sector falling 2.1%.
The Invesco KBW Bank ETF KBWB, -3.03% fell 3%, its worst one-day decline since Dec. 24, and the SPDR S&P Regional Banking ETF KRE, -3.41% lost 3.4%, its worst drop since Dec. 4.
The Nasdaq Composite Index COMP, +0.07% flipped higher, adding 5.02 points to 7,728.97.
What drove the market?
The Fed maintained its accommodative stance and its dot plot indicated that it will end its balance-sheet runoff by September. The central bank also cut its gross domestic product estimate for this year to 2.1% from 2.3% and trimmed its PCE inflation forecast to 1.8% from 1.9%, leaving its core PCE estimate at 2%.
During the press conference following the decision, Chairman Jerome Powell said patience means “no need to rush to judgment” and the new policy on the balance sheet will assure a “smooth” and “predictable” process. He also said the risks of financial instability are not high, unlike 1998 when easy money policy was blamed for fostering a tech bubble.
On the trade front, President Donald Trump told reporters that his administration is considering leaving tariffs on Chinese imports in place for a “substantial period of time,” according to The Wall Street Journal.
What were analysts saying?
“As expected, the Federal Open Market Committee left rates unchanged at its meeting today. This marks the first calendar quarter in which the Fed has not raised rates since third quarter 2017,” said Jason Pride, chief investment officer of private wealth at Glenmede, in emailed comments. “The Fed is reiterating its ‘patient’ posture for the timing of future rate changes, in recognition of the relatively soft economic outlook.”
“The markets saw the FOMC statement as being dovish — focusing on the dot plot and its reduction of projected interest-rate increases,” said Chris Gaffney, president of world markets at TIAA Bank. But Powell tried to keep things more neutral during the press conference by walking a fine line between expressing confidence in the economy and acknowledging that risks exist, he said.
With a softer employment report and few signs of inflationary pressures, the Fed can’t do anything to upset the apple cart, said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management.
What stocks were in focus?
Shares of FedEx Corp. FDX, -3.49% often viewed as a barometer of global growth prospects, fell 3.5% after the logistics company missed Wall Street forecasts for its fiscal third quarter, partly due to higher costs for its FedEx Ground business.
Alphabet Inc. GOOG, +2.10% GOOGL, +1.99% shares rose 2%, shrugging off news that the European Union fined the Google parent 1.49 billion euros ($1.69 billion) for abusing the dominance of its search engine to block competitors in the market of selling text ads on search results that appear on third-party websites.
General Mills Inc. GIS, +2.22% shares gained 2.2% after the branded consumer-foods maker reported fiscal third-quarter profits above expectations, while raising its outlook for the full year.
Shares of The E.W. Scripps Co. SSP, -2.76% dropped 2.8% after the television and newspaper-publishing company said it would acquire eight TV stations in seven markets from the Nexstar Media Group Inc. NXST, -0.10% and Tribune Media TRCO, +0.00% .
How did other markets trade?
Asian markets closed mostly lower, with China’s Shanghai Composite Index SHCOMP, -0.01% and Hong Kong’s Hang Seng Index HSI, -0.49% both losing ground. Japan’s Nikkei 225 NIK, +0.20% rose 0.2%.
European shares also retreated, led by Germany’s DAX DAX, -1.17% . The Stoxx Europe 600 SXXP, -0.90% fell 0.9%.
Crude oil pries CLJ9, +1.85% shook off earlier weakness to rise, gold GCJ9, +1.11% settled lower, while the U.S. dollar DXY, -0.06% weakened against peers.