U.S. stocks closed lower Wednesday after the Federal Reserve opted to keep rates near zero, as expected, and monetary policy loose at the conclusion of its two-day policy meeting.
Investors also geared up for President Joe Biden to unveil a new $1.8 trillion package of spending and tax cuts Wednesday evening that aims to bolster children and families.
How did major indexes perform?
The Dow Jones Industrial Average
fell 164.55 points, or 0.5%, ending at 33,820, near the session low.
The S&P 500
shed 3.54 points, or 0.1%, finishing at 4,183.18, after hitting an all-time intraday high of 4,201.53.
The Nasdaq Composite
closed down 39.19 points, or 0.3%, at 14,051.03.
The Russell 2000
rose 2.892 points, or 0.1%, to close at 2,304.16.
On Tuesday, major benchmarks were largely in a holding pattern, with the Dow
posting a gain of 3.36 points, or less than 0.1%, at 33,984.93, while the S&P 500
shed less than 0.1% and the Nasdaq Composite
gave up 0.3%.
What drove the market?
Stocks bounced around Wednesday afternoon, but finished lower after Federal Reserve Chair Jerome Powell vowed to keep benchmark interest rates near zero and said policy will stay accommodative for some time, despite rising inflation.
Fed officials also said the U.S. economy and employment picture have “strengthened” and that inflation has climbed, but called the increase “transitory.”
Powell stressed that the vaccination push in the U.S. strengthened the economy, in an afternoon press conference, while echoing the Fed’s policy statement about staying committed to keeping policy settings loose until about 8 millions jobs lost to the pandemic can be recouped and until inflation tracks above its 2% “for some time.”
“What Powell is really trying to emphasis is that we are not there yet,” said Kathy Jones, chief fixed income strategist at Schwab Center for financial research, adding that he also stressed that it’s premature to talk about tightening or tapering.
“He also emphasized that he wants to see inflation move above 2% and stay there,” Jones told MarketWatch.
Stocks struggled for direction all week, with benchmark indexes trading near all-time highs, despite strong corporate earnings reports and economic data as investors assess how much good news already has been factored into the market.
“This combination of easy monetary policy, expansionary fiscal policy and healthy household balance sheets has given rise to fears of overheating,” Scott Clemons, chief investment strategist at Brown Brothers Harriman, wrote in emailed commentary, but added that those “fears are overdone, particularly as earnings estimates continue to rise and provide more fuel to markets.”
While the market may be expensive based on current valuations, Clemons thinks that “at 23x 2021 full year forecasts, valuations are reasonable.” As a counterpoint, John Higgins, chief markets economist at Capital Economic, said the stock market will struggle for the next two years, because Wall Street’s views on earnings expectations are getting out of hand.
Largely positive earnings results rolled in from a number of major technology companies and other corporate heavyweights late Tuesday and Wednesday, with more to come as one of the busiest weeks of reporting season continues. Facebook
report report after the market close Wednesday.
Later Wednesday Biden, in an address to a joint session of Congress, is set to detail a plan that would see new spending on education, child care, and paid leave, while extending some tax breaks.
To partly pay for the plan, Biden will propose raising the top tax rate on the wealthiest Americans to 39.6% from 37% and would raise the tax rate on capital gains for people earning more than $1 million a year to 39.6% from 20%. The tax changes are forecast to raise $1.5 trillion over 10 years.
“There’s a lot coming all at once” for the market to absorb, including earnings, taxes and government spending plans, Joshua Wein, a portfolio manager with Hennessy Funds, said in a phone interview Wednesday. He said aerospace giant Boeing Co.
was among the companies to weigh on the Dow, after the plane maker reported a larger-than-expected loss. Shares of Amgen Inc. and Microsoft Corp. also contributed to the blue-chip gauge’s decline.
In economic news, the U.S. trade deficit in goods rose in March for a third straight month, hitting another record high. The advanced trade gap in goods climbed 4% to $90.6 billion in March, the U.S. Census Bureau said Wednesday.
Which companies were in focus?
Shares of Dow component Microsoft Corp.
shed 2.8% Wednesday after delivering earnings late Tuesday that easily topped Wall Street forecasts.
Advanced Micro Devices Inc.
late Tuesday said data-center revenue more than doubled as it reported results that topped Wall Street estimates. Shares shed 1.4%.
Shares of Starbucks Corp.
lost 3.2% after the retail coffee chain reported mixed fiscal second-quarter earnings, with sales slightly below forecasts.
Shares of Boeing Co.
slumped 2.9% after the plane maker and Dow component reported a larger-than-expected loss.
Shares of AMC Entertainment Holdings Inc.
fell 5.3%, after the theater chain late Tuesday disclosed plans to sell up to 43 million shares in an at-the-market offering, but said it would not ask shareholders to approve the potential sale of 500 million more shares.
shares tumbled 7.2% after the company said profit declined in the first quarter due to lower sales as the COVID-19 pandemic continued to affect patient visits and the diagnosis of new patients.
shares gained 1.5% after the Dow component topped expectations with its latest quarterly results and saw a return to growth for credit transactions.
Shares of Mondelez International Inc.
added 3.7% after the maker of Oreos and other food and beverages reported first-quarter profit and sales above expectations.
Shares of Yum Brands Inc.
gained 1% after the global fast-food company beat first-quarter earnings and revenue expectations.
Six Flags Entertainment Corp.
shares dipped 2.3% after the theme park operator reported a narrower first-quarter loss that beat expectations, and a smaller-than-expected fall in revenue, as attendance was more than double what was anticipated.
What did other markets do?
The yield on the 10-year Treasury note
was virtually flat at 1.621%. Yields and bond prices move in opposite directions.
The ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, fell 0.3%.
Oil futures settled higher, with the U.S. benchmark
up 1.5% at $63.86 a barrel. Gold futures
closed lower, falling 0.3% to settle at $1,773.90 an ounce.
In global equity trading, the Stoxx Europe 600 index
closed fractionally higher, while London’s FTSE 100
gained 0.3%. The Shanghai Composite
and Hong Kong’s Hang Seng Index
each rose 0.45%, while Japan’s Nikkei 225
William Watts contributed reporting