The news that was on everyone screens on Wednesday involved the Federal Reserve’s decision on monetary policy where the central bank raised its target overnight rate by 25 basis points to a range of 2%-2.25% up from 1.75%-2%, marking the eighth rate hike since 2015. Following the decision the major US indexes rose, yet as Chairman Jerome Powell answered questions, stocks sold off leaving the Dow -0.40%, S&P 500 -0.33% and the Nasdaq -0.21%.
The rally on Wall Street was short lived as investors focused on Powell’s comments to the press. Among the comments to reporters, Powell noted that he does not see inflation surprising to the upside and said “it’s not in the forecasts of the Fed”. In addition the central bank axed the word “accommodative” from its official statement on how it described monetary policy potentially hinting towards a more neutral stance on interest rates. Earlier on Wednesday the Fed lifted their outlook on US economic growth for this year and next year expecting 3.1% growth in 2018 up from 2.8% and 2.5% growth in 2019 up from 2.4%. Yet above all the Fed still projected another rate hike in December along with three more potentially next year.
Despite the projections markets reversed course as the S&P 500 financial sector was hit the hardest down 1.28%. Investors didn’t want to be in the major banks as shares of JP Morgan fell 1.18%, Wells Fargo declined 1.97% and Bank of America fell 1.76% to name a few. Utilities and Real Estate stocks were also among the laggards of the day as both S&P 500 sectors were down 1.15% and 1.04%, respectively. Both sectors are sensitive to interest rates as their components are favoured for their dividend yields. Shares of Welltower were down 2.46% and DowDuPont Inc closed 1.56% lower.
In stock specific news, shares of Twenty-First Century Fox climbed 1.02% higher after agreeing to sell its stake in Sky PLC to Comcast, whose shares fell 0.08%. In connection to the media M&A Walt Disney who is buying Fox, saw its shares rise 1.3%. On the earnings front, Nike shares fell 1.3% despite a successful quarter topping analyst estimates. IBM shares rose 1.8% after receiving a broker upgrade and indicating that the company will report better than expected earnings next quarter. Bed bath & Beyond shares fell 15% after the final bell as the company reported second quarter earnings and missed expectations.
In currency markets, the US dollar briefly fell against the euro and yen after the Fed’s rate decision but edged higher as investors digested the news. The dollar index was last up 0.1% at 94.179, the euro fell to $1.1734 against the dollar and against the yen the dollar was up slightly at 113.01 yen. Treasury yields also fell on Wednesday as the US-10 year treasury notes were last yielding 3.048% and the yield on the US-2 year treasury notes was 2.819%.
Chart of the Day: Goldman Sachs (GS) Daily Chart