U.S. stock indexes were mostly lower as investors weighed the Federal Reserve’s decision to rule out interest rate increases this year, its latest outlook on the U.S. economy and more in Wednesday’s Stock Market Update.
The Fed’s decision not to raise rates this year was a marked change from three months ago, when the central bank projected two rate hikes in 2019. The move initially cheered investors, sparking a rebound in stocks after an early slide. But the upward momentum didn’t last and some of the market indexes slipped back into the red.
The Fed policymakers, emerging from a two-day meeting, also projected that the U.S. economy would grow more slowly this year and next, a change from the panel’s projections just three months ago. The central bank also said it will stop shrinking its bond portfolio in September, a step that would help hold down long-term interest rates.
Bond prices continued to climb after the Fed announcement, sending yields lower. The yield on the 10-year Treasury fell sharply, sliding to 2.53 percent from 2.61 percent late Tuesday.
Losses in banks and health care stocks outweighed gains in communications and energy stocks.
Goldman Sachs dropped 2.8 percent, while Cigna slid 2.6 percent. Netflix gained 4.4 percent and Hess climbed 4.2 percent.
Stocks closed on a soft note Tuesday, ending a week-long rally. The market is still off to a roaring start to the year. The S&P 500 index is up 12.8 percent so far in 2019. That’s better than the full-year gains for the benchmark index in four of the past five years.
Developments in the trade talks between the U.S. and China helped pull the market lower earlier in the day.
President Donald Trump said if negotiations result in a deal, tariffs could stay in place for some time to ensure Beijing “lives by the deal.” Trump added that the White House was discussing keeping tariffs for a “substantial period of time,” adding that China has had “problems living by certain deals.”
Administration officials are set to visit China for more negotiations late next week for another round of negotiations. Trump said the talks are “coming along nicely.”
Wall Street is hoping for a resolution to the damaging trade war between the world’s largest economies, which has made goods more costly for companies and consumers.
STOCK MARKET UPDATE
THE QUOTE: The Fed’s announcement was clearly positive for the market, said Quincy Krosby, chief market strategist at Prudential Financial.
“Powell’s suggestion that the Fed is on hold this year is important,” she said. “The question for the market remains whether or not the four rate hikes from last year and the unwinding of the balance sheet at the same time could be continuing, even now, to tighten financial conditions.”
KEEPING SCORE: The Dow Jones Industrial Average fell 114 points, or 0.4 percent, to 25,773 as of 3:50 p.m. Eastern time.
The average had been down more than 216 points earlier. The S&P 500 dropped 0.2 percent. The Nasdaq composite rebounded, adding 0.2 percent.
Major European indexes finished lower.
PRESSURE DROP: Treasury yields sank sharply following the Fed’s announcement, and the 10-year yield touched its lowest level in more than a year. Yields have been falling steadily since November, as worries rose about a slowing global economy and traders subsequently made moves in anticipation of a more patient Fed.
Wednesday’s indication that the Fed may not touch overnight interest rates through all of 2019 triggered one of the biggest slides for Treasury yields in months.
The 10-year Treasury yield dropped as low as 2.53 percent, down from 2.61 percent late Tuesday and from 3.20 percent late last year. If it stays there, the 0.08 percentage point drop would be the largest since early January. The two-year Treasury yield, which is more influenced by Fed movements, fell to 2.39 percent from 2.45 percent late Tuesday.
It was only last autumn that rates were on the rise and rattling investors, who worried that an overly aggressive Federal Reserve would keep raising rates and choke off growth in the face of a slowing global economy. The Fed increased rates four times last year and three times in 2017.
Besides encouraging more borrowing and economic growth, lower interest rates can make stocks look more attractive to investors, at least when compared with the lower amount of interest that bonds are paying. Low interest rates can boost high-dividend paying stocks in particular, whose payouts suddenly look more compelling, and utilities and real-estate stocks had some of the market’s biggest gains Wednesday.
On the losing end, though, are U.S. banks, whose profits can take a hit if the gap between short- and long-term interest rates narrows. Financial stocks in the S&P 500 fell 0.8 percent for the largest loss among the 11 sectors that make up the index.
DAMAGED PACKAGES: FedEx fell 3.6 percent after the company told investors that weak economic growth and higher costs will continue to cut into profit and revenue.
GAME ON: Google jumped into the video game arena, unveiling is Stadia platform and sinking shares of Sony and Nintendo.
Stadia works by streaming games on existing platforms, such as laptops and phones and can be shared directly to YouTube. It will potentially compete with more traditional console-based video game platforms, like Sony’s PlayStation. Sony’s U.S.-listed stock slid 5.3 percent in relatively heavy trading. Shares in Google parent Alphabet added 1.6 percent.
OIL SPIKES: News of tighter supplies of oil and continued production cuts helped to briefly push the price of benchmark U.S. crude oil above $60 a barrel. It hadn’t closed above that price since November. It fell back slightly in afternoon trading, finishing with a gain of 1.4 percent to $59.83 a barrel.
The rise came after the U.S. government reported that supplies of oil fell 9.6 percent last week and news that OPEC plans on maintaining deep production cuts.
The price of oil has been increasing sharply since Christmas Eve, when it hit a low of just over $42 per barrel. That followed a 44 percent plunge since October 3, when it hit a high of just over $76 per barrel.
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