U.S. stocks sold off late in the day 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, something some investors had been hoping for.
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 reassured 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’s been growing steadily since late last year.
Still, some investors who saw inflation trending below the Fed’s preferred target of 2% thought Chairman Jay Powell might signal a rate cut to spur economic growth, a notion that Powell dashed during a press conference and that some market watchers dismissed as wishful thinking.
“I don’t think investors who were anticipating a rate cut were being very realistic,” said Karyn Cavanaugh, senior markets strategist at Voya Investment Management.
Cavanaugh said 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%.
The S&P 500 index fell 22.10 points, or 0.8%, to 2,923.73.
The Dow Jones Industrial Average lost 162.77 points, or 0.6%, to 26,430.14. The Nasdaq composite dropped 45.75 points, or 0.6%, to 8,049.64. The Russell 2000 index of smaller company stocks gave up 14.83 points, or 0.9%, to 1,576.38.
The U.S. stock market has been riding high this year as it’s made its way back from a nosedive at the end of 2018. The Fed spurred the market’s recovery earlier this year when it signalled that it would take a patient approach to raising interest rates.
On Wednesday, the central bank once again reassured investors that it is unlikely it will hike rates in coming months. The Fed raised rates seven times over 2017 and 2018.
The Fed also expressed a more upbeat view of the economy, saying “economic activity rose at a solid rate.” In March, the Fed had said it appeared that growth had slowed from the fourth quarter of last year.
“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 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 have been betting will happen before year’s end.
“The committee is comfortable with our current policy stance,” Powell said.
The U.S. dollar spiked 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 had been moving sideways right before the Fed’s announcement. They rallied earlier in the day as large U.S. companies continued to surprise investors with solid profits.
Apple rose 4.9% after its first quarter results beat Wall Street forecasts. The consumer electronics giant’s sales are still shrinking as iPhone demand weakens, however. Still, Apple raised its dividend and signalled 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 revenue higher, along with more demand for onboard activities.
CVS Health climbed 5.4% after the company reported a 42% surge in quarterly profits, 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, which makes both Molson and Coors, 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’ worst fears about a severe profit slump. Earnings are down about 0.3% so far for S&P 500 companies. That’s far better than the 4% drop expected just a few weeks ago.
Energy futures finished mostly higher. Benchmark U.S. crude fell 0.5% to settle at $63.60 per barrel. Brent crude added 0.2% to close at $72.18 per barrel.
Wholesale gasoline inched 0.1% lower to $2.06 per gallon. Heating oil rose 0.8% to $2.09 per gallon. Natural gas added 1.7% to $2.62 per 1,000 cubic feet.
Gold dropped 0.1% to $1,284.20 per ounce, silver fell 1.7% to $14.73 per ounce and copper slid 3.5% to $2.80 per pound.
The dollar rose to 111.61 Japanese yen from 111.37 yen late Tuesday. The euro weakened to $1.1194 from $1.1221.