The U.S. stock market failed to defend earlier gains and slid into negative territory on Wednesday after the Federal Reserve kept interest rates unchanged but hinted that it will likely raise rates in March as expected.
Main indexes have been higher most of the session even as weak health-care stocks capped the market’s upside.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, +0.15% fell 21 points to 26,055. The Dow had surged 262 points higher at its peak during the session, thanks in part to a rally in shares of Dow component Boeing Co.
The S&P 500 index SPX, -0.03% was down 9 points to 2,813, with the health-care sector down 1.5%, under pressure for a second day. The selloff follows news that Amazon.com Inc. AMZN, +1.52% Berkshire Hathaway BRK.A, -0.31% BRK.B, -0.12% and JPMorgan Chase JPM, +0.51% a plan on Tuesday to form a company to address rising health costs for their U.S. employees, rattling the sector. President Donald Trump vowed to tackle high health-care prices in Tuesday night’s State of the Union address.
The Nasdaq Composite Index COMP, +0.01% shed 20 points, or 0.3%, to 7,381.
On Tuesday, the Dow suffered its steepest one-day drop in eight months, falling by about 363 points, or 1.4%. The S&P 500 gave up 1.1%, and the Nasdaq Composite lost 0.9%.
For the week, the indexes are on pace for drops of 1% to 2%. Still, for the month, the market is set for strong gains, boding well for the rest of the year.
What’s helping to drive markets?
The Fed said it expects inflation “to move up this year” in a sign it’s likely to hike rates at its next meeting in March. Inflation is likely to stabilize around its 2% target, said the central bank, dropping prior language about a recent decline in prices. In another notable change, the Fed said “market-based measures of inflation compensation have increased in recent months.” However, the Fed left its benchmark short-term rate at a range of 1.25% to 1.50%. The January meeting is the last for outgoing Chairwoman Janet Yellen who will be replaced by fellow board member Jerome Powell on Feb. 3.
The three main stock gauges have slumped this week, with analysts saying rising bond yields have helped peel money away from equities. The yield on the 10-year Treasury note TMUBMUSD10Y, -0.17% was trading around 2.72% after touching a three-year high on Tuesday.
Factors such as an expanding U.S. economy, growth in corporate profits, and enthusiasm over recently enacted tax cuts and other business-friendly policies have helped to support stock buying. Tuesdays downturn reflected expectations that a pullback after a strong start to the year was warranted, according to many analysts.
What data are in focus?
ADP’s January report showed that 234,000 private-sector jobs were added. The report comes ahead of the more closely watched nonfarm-payrolls report on Friday. The ADP report is looked at by traders and strategists for clues about Friday jobs report but economists have noted that the report has a spotty history aligning with the Labor Department’s data.
The Chicago PMI slipped 2.1 points to 65.7, MNI Indicators said Wednesday. That said, the reading was still strong, with any reading over 50 indicating expansion.
U.S. employment costs, meanwhile, rose by 0.6% in the fourth quarter.
U.S. pending home sales rose 0.5% in December, the National Association of Realtors said Wednesday, marking the highest reading since March, even though the index stands just 0.5% higher than a year ago.
What are strategists saying?
“We should get use to an environment in which interest rates are climbing,” said Kate Warne, investment strategist at Edward Jones. “It doesn’t mean that stocks will drop off a cliff,” she said, noting that more volatility is tied to “uncertainty about the pace of economic growth” and earnings growth.
Strategists said Trump’s relatively subdued State of the Union address on Tuesday night may have helped the mood.
“Equities seem to be appreciating the uneventful State of the Union address from President Trump last night,” said Konstantinos Anthis, an ADS Securities analyst, in a note.
Source: marketwatch.com | Original Link
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