U.S. Stocks Surrender Gains After Fed Decision

By Riva Gold and Amrith Ramkumar Features Dow Jones Newswires

U.S. stocks give up earlier gains

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-- Boeing rallies after earnings

-- Treasury yields volatile after Fed leaves rates unchanged

The S&P 500 gave up earlier gains Wednesday after the Federal Reserve left interest rates unchanged but reiterated plans to gradually raise them moving forward.

Concerns about higher inflation and less accommodative central-bank policy have led to a pause in this year's torrid stock-market rally. The Fed's statement Wednesday said officials expect inflation will move higher this year and stabilize around 2% over the medium term. Some analysts said they think investors are bracing for the possibility of a more aggressive central bank, pushing up Treasury yields and weighing on stocks.

After years of forecasts for higher interest rates and inflation turned out to be inaccurate, some investors think steady economic growth will finally translate this year.

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"This looks like it could be a different year," said Alicia Levine, investment strategist with BNY Mellon Investment Management. "The Fed seems to have changed its stance on inflation. It sees a little bit more inflation in the system."

"The movement in stocks since the beginning of the year has been remarkable," she added. "When equities move at that kind of velocity, you want them to come off."

The Dow Jones Industrial Average declined 5 points, or less than 0.1%, to 26072 after earlier rising as much as 261 points. The S&P 500 declined 0.3%, and the Nasdaq Composite fell 0.2%.

The yield on the benchmark 10-year U.S. Treasury note climbed to 2.729%, according to Tradeweb, from 2.725% Tuesday -- its highest settlement since April 2014.

Even with recent declines, the Dow industrials were on track for their largest one-month percentage gains in more than 18 months.

Some investors said a positive earnings and economic backdrop remains intact following tax changes, though concerns interest rates have become more pronounced in recent sessions.

"I would expect these kinds of dips that we've seen over the past couple of days would be buying opportunities," said Shannon Saccocia, chief investment strategist at Boston Private.

While stocks and bond yields have often climbed together in the past, some analysts have said a rapid move higher in yields can hurt steady dividend-payers in the stock market and trigger wider concerns about risky assets.

"What we're reckoning with here is the end of this era of very easy money," said Kathy Jones, chief fixed income strategist for Schwab Center for Financial Research.

In company news, Boeing shares added 4.5%, contributing more than 100 points to the Dow industrials, after the aerospace giant forecast a higher profit margin and a big rise in cash generated from record jetliner deliveries.

Shares of Electronic Arts rose 7.2% after posting sharp growth in live services revenue in the holiday quarter, while Xerox gained 5.7% after shrinking its loss and sealing a deal in which Japan's Fujifilm Holdings will take a majority stake.

Health insurer Anthem was also among the S&P 500's best performers. The firm exceeded sales and profit expectations in the most recent quarter.

Technology heavyweights Facebook and Microsoft are scheduled to report earnings after the market closes Wednesday.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses and closed down 0.2% following its biggest daily fall of the year. Hong Kong's Hang Seng rose 0.9% to cap off its best month since April 2015. Japan's Nikkei ended down 0.8% as the yen strengthened against the dollar.

--Kenan Machado contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com

-- U.S. stocks close higher

-- Boeing rallies after earnings

-- Treasury yields volatile after Fed leaves rates unchanged

U.S. stocks inched higher Wednesday as the latest round of better-than-expected earnings outweighed concerns about higher interest rates and declines in health-care stocks.

Some investors said a positive earnings and economic backdrop remains intact, though concerns about higher inflation and less accommodative central-bank policy have become more pronounced recently. Stocks briefly turned negative Wednesday after the Federal Reserve left interest rates unchanged, but reiterated plans to gradually raise them moving forward.

Still, some analysts said interest rates are likely to remain low by historical standards and that steady corporate profit growth following recent tax changes should push major indexes higher.

"We think fundamentals are very strong," said Alicia Levine, head of global investment strategy at BNY Mellon Investment Management. "Growth is strengthening throughout the world."

Still, "the movement in stocks since the beginning of the year has been remarkable," she added. "When equities move at that kind of velocity, you want them to come off."

The Dow Jones Industrial Average closed up 73 points, or 0.3%, at 26149, ending a two-session losing streak. The S&P 500 added less than 0.1%, and the Nasdaq Composite rose 0.1%. Even with declines earlier this week, the Dow Industrials posted their largest one-month percentage gain in more than 18 months.

The yield on the benchmark 10-year U.S. Treasury note Wednesday settled at 2.722% from 2.725% Tuesday, staying near its highest settlement since April 2014.

The Fed's statement Wednesday said officials expect inflation will move higher this year and stabilize around 2% over the medium term. After years of forecasts for higher interest rates and inflation that turned out to be inaccurate, some investors think steady economic growth will finally translate this year, pushing up Treasury yields and potentially weighing on stocks and other risky assets.

"What we're reckoning with here is the end of this era of very easy money," said Kathy Jones, chief fixed income strategist for Schwab Center for Financial Research.

In company news, Boeing shares added 4.9%, contributing roughly 110 points to the Dow Industrials, after the aerospace giant forecast a higher profit margin and a big rise in cash generated from record jetliner deliveries.

Shares of Electronic Arts rose 7% after posting sharp growth in live services revenue in the holiday quarter, while Xerox gained 4.4% after shrinking its loss and sealing a deal in which Japan's Fujifilm Holdings will take a majority stake.

Health insurer Anthem rose 1.8%. The firm exceeded sales and profit expectations in the most recent quarter.

The S&P 500 health-care sector fell for the second straight session, dropping 1.4%. Eli Lilly was among the biggest laggards on new concerns about drug pricing and weakness in the company's animal-drug business.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses and closed down 0.2% following its biggest daily fall of the year. Hong Kong's Hang Seng rose 0.9% to cap off its best month since April 2015. Japan's Nikkei ended down 0.8% as the yen strengthened against the dollar.

--Kenan Machado contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

January 31, 2018 16:33 ET (21:33 GMT)