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Market Snapshot: U.S. stocks end lower, despite Powell vow to keep Fed policy supportive for some time

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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
    DJIA,
    -0.48%

    fell 164.55 points, or 0.5%, ending at 33,820, near the session low.
  • The S&P 500
    SPX,
    -0.08%

    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
    COMP,
    -0.28%

    closed down 39.19 points, or 0.3%, at 14,051.03.
  • The Russell 2000
    RUT,
    +0.13%

    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
DJIA,
-0.48%

posting a gain of 3.36 points, or less than 0.1%, at 33,984.93, while the S&P 500
SPX,
-0.08%

shed less than 0.1% and the Nasdaq Composite
COMP,
-0.28%

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. 

Read: Debt markets getting the memo on the path of likely Fed rate hikes

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.

Need to Know: The Fed is standing aside as house prices rip higher — but here’s what could get in the way

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
FB,
+1.16%

and Apple
AAPL,
-0.60%

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.

Read: Biden to lay out $1.8 trillion family spending plan that calls for capital-gains tax hike

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.
BA,
-2.89%

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.

Read: The U.S. economy sped up in the first quarter. Here’s what GDP data will show.

Which companies were in focus?
What did other markets do?
  • The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    was virtually flat at 1.621%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index
    DXY,
    -0.33%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.3%.
  • Oil futures settled higher, with the U.S. benchmark
    CL00,
    +1.13%

    up 1.5% at $63.86 a barrel. Gold futures
    GC00,
    +0.16%

    closed lower, falling 0.3% to settle at $1,773.90 an ounce.
  • In global equity trading, the Stoxx Europe 600 index
    SXXP,
    +0.02%

    closed fractionally higher, while London’s FTSE 100
    UKX,
    +0.27%

    gained 0.3%. The Shanghai Composite
    SHCOMP,
    +0.42%

    and Hong Kong’s Hang Seng Index
    HSI,
    +0.45%

    each rose 0.45%, while Japan’s Nikkei 225
    NIK,
    +0.21%

    gained 0.2%.

William Watts contributed reporting

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