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A man walks past the New York Stock Exchange on Wall Street on May 10, 2021 in New York City.
AFP via Getty Images
Stocks fell on Wednesday as the Federal Reserve signaled it expects to increase the benchmark lending rate ahead of schedule.
The
Dow Jones Industrial Average
was down 320 points, or 0.9% and the
S&P 500
fell 0.9%. The
Nasdaq Composite
was 1% lower. The 10-year Treasury yield rose to 1.55% from 1.49% just before the Fed’s release. The U.S. Dollar Index, which becomes more attractive when bond yields in the U.S. rise, popped 0.5% to 90.99.
The Federal Reserve’s projections show an interest rate hike to 0.6% from 0% currently by the end of 2023, a bit sooner than what was anticipated. This comes after the producer-price index, released Tuesday, rose more than expected, excluding food and energy.
“That is hawkish and bad for overall risk assets,” writes Dennis DeBusschere, head of portfolio strategy research at Evercore. The term “hawkish” means that the Fed is confident in the economy and sees reason for rate hikes.
The Fed validated what many market participants and analysts believe, which is that the recent inflation is temporary, a result of normal prices compared to last year’s lockdown period and low supply of goods. “Inflation has risen, largely reflecting transitory factors,” the Fed said in its statement.
Data released Wednesday showed that housing starts for May came in at 1.57 million, below the estimate of 1.63 million. Building permits were 1.68 million, below the expected 1.73 million.
The
Nikkei 225 index
slipped 0.5% Wednesday, while China’s
CSI 300 index
lost 1.7%. Fresh data out of China showed signs of the country’s strong rebound from the Covid-19 pandemic starting to moderate, with industrial production and retail sales rising, but at a slower pace.
The
European Stoxx 600
index was 0.2% higher.
Copper prices slipped, after China said it plans to release national metal reserves in a bid to cool a surge in commodities prices. That also hit shares of mining stocks in Europe, with shares of
Anglo American
(ticker: ALL),
Rio Tinto
(RIO), and
Glencore
(GLEN) weakening.
Shares of
Oracle
(ORCL) were down 6% after the enterprise software company reported better-than-expected fiscal fourth-quarter results, but softer-than-anticipated guidance for the August quarter. The stock has rallied nearly 30% since mid-March, so investors may be compelled to take profits.
Dish Network
(DISH) gained 2.4% after getting upgraded to Buy from Hold at Pivotal Research.
U.S. Steel
(X) dropped 4.6% after getting assumed with Underweight from Neutral at JPMorgan.
General Motors
(GM) rose 1.6% after it said it would increase spending on electric vehicles by 30% by 2025.
Meme stocks were trading lower.
AMC Entertainment Holdings
(AMC) stock fell 10.3%, while
GameStop
(GME) stock declined 2.9%.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
