Fed expects to start reducing balance sheet gradually this year
The Dow industrials closed Wednesday at a record for a second straight session but other benchmarks finished lower as the Federal Reserve hiked the fed-funds futures rate after its two-day policy meeting, as expected, and indicated that it would reduce its $4.5 trillion balance sheet "this year."
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The Dow Jones Industrial Average closed up 46.09 points, or 0.2%, at a record 21,374.56, after touching an intraday record at 21,391.97. Gains in shares of Home Depot Inc (http://www.marketwatch.com/story/home-depots-stock-surges-to-lead-dow-gainers-after-some-encouraging-retail-sales-data-2017-06-14).(HD), Travelers Cos.(TRV) and General Electric Co.(GE) led the average higher, with shares of Chevron Corp. (CVX), DuPont(DD) and Exxon Mobil Corp. (XOM) dragging.
The S&P 500 declined 2.43 points, or 0.1%, to 2,437.92, with five of the 11 main sectors finishing lower. Consumer-staples and utilities shares were leading gains, both up 0.6%, while materials declined 1.1% and the energy (http://www.marketwatch.com/story/energy-sector-faces-worst-daily-drop-in-3-months-as-oil-prices-drop-2017-06-14)sector dropped 1.8%.
Meanwhile, the tech-heavy Nasdaq Composite Index was the worst performer among the main U.S. equity gauges, finishing down 25.48 points, or 0.4%, at 6,194.89.
The Fed hiked the fed-funds rate by a quarter-point (http://blogs.marketwatch.com/capitolreport/2017/06/14/fed-interest-rate-decision-and-janet-yellen-press-conference-live-blog-and-video/) to between 1% and 1.25%.
"Many hoped the Fed would give details about the unwinding of the balance sheet, like how much and how soon and at what pace. But the Fed was vague, only saying it will start to 'shrink gradually' sometime this year. They gave themselves a lot of leverage to shrink the balance sheet as they see fit," said JJ Kinahan, chief market strategist at TD Ameritrade.
"When a rate hike probability is at 99%, it is very difficult to have a big reaction after the announcement," he said.
Stocks are showing a muted reaction to the Fed announcement but they're still focused on growth, unlike bonds, which are moving more cautiously, said Joe Saluzzi, co-head of equity trading at Themis Trading.
"Everyone's chewing on the inflation part," Saluzzi said. "The real story is if the economy is growing and [the Fed is] saying 'Ehh...not really.'"
Fed Chairwoman Janet Yellen, in a news conference, said she still expects inflation to hit a 2% target next year, mentioning that recent declines are coming from such areas as telecom.
Earlier in the session, disappointing readings on inflation and retail sales for May sparked a so-called flight to safety, pushing bond yields and the dollar sharply lower. That, combined with a sharp drop in crude-oil futures, helped to undercut the market's early optimism.
Oil futures (http://www.marketwatch.com/story/oil-prices-under-pressure-on-worries-data-will-confirm-rising-us-stockpiles-2017-06-14) fell 3.7% to settle at $44.73 a barrel following a report from the Energy Information Administration that showed a smaller-than-expected decline in crude supplies and an increase in gasoline supplies and crude production. That came after an American Petroleum Institute data on Tuesday that also showed a rise in U.S. oil and gasoline stockpiles.
On the economic data front, the consumer-price index (http://www.marketwatch.com/story/inflation-falls-again-in-may-as-cpi-recedes-from-recent-high-water-mark-2017-06-14), or cost of living, fell by a seasonally adjusted 0.1% in May, largely thanks to lower gasoline prices, which also depressed retails sales (http://www.marketwatch.com/story/us-retail-sales-in-may-are-weakest-in-16-months-2017-06-14)last month.
Against that backdrop, Treasury yields rebounded slightly (http://www.marketwatch.com/story/treasury-yields-rise-slightly-after-feds-policy-update-2017-06-14) with the yield on the 10-year bond , which moves inversely to prices, down 8 basis points to 2.128%, the lowest level since last November, while the yield on the two-year Treasury was down 5 basis points at 1.319%. The dollar fell 0.2% against major currencies, while gold futures (http://www.marketwatch.com/story/gold-turns-higher-as-soft-economic-reports-raise-doubts-about-fed-moves-after-wednesday-2017-06-14) rose 0.6% to settle at $1,275.90 an ounce, snapping a five-session skid.
Shannon Saccocia, head of asset allocation & portfolio strategy at Boston Private, said softer data are consistent with recent trends of weakness but were unlikely to change the Federal Reserve's well-telegraphed plan to raise interest rates.
"The market can absorb three rates hikes this year, though the Fed might pause in raising rates after this patch of soft economic data," Saccocia said. The next opportunity to lift rates again comes in September.
Earlier, stock futures largely shrugged off news of a shooting in northern Virginia, where House Majority Whip Steve Scalise (http://www.marketwatch.com/story/house-majority-whip-scalise-shot-at-congressional-baseball-practice-2017-06-14) and several other people were wounded after a gunman opened fire during a baseball practice. The suspected shooter died after a gunbattle with police.
Saccocia said the market may continue to ignore the shooting unless it turns out to be an organized plan involving more than just a lone shooter.
Individual movers: Shares in Tesla Inc.(TSLA) traded 1.3% higher after the maker of electric cars scored another record close Tuesday.
The jump came amid news that Tesla's Model X SUV snagged a five-star safety rating (http://www.marketwatch.com/story/teslas-model-x-gets-5-star-safety-rating-from-nhtsa-2017-06-13), and as billionaire investor and Tesla bull Ron Baron said the stock could rise by more than 50% by 2018 (http://www.marketwatch.com/story/billionaire-predicts-blue-chips-to-double-by-2030-and-tesla-shares-to-do-even-better-2017-06-13).
Oil-related stocks were among the worst performers on the S&P 500, with shares of Transocean Ltd.(RIG) down 5.1%, Murphy Oil Corp.(MUR) stock down 5.4%, and shares of National Oilwell Varco Inc.(NOV) down 4.9%.
United Parcel Service Inc.(UPS) shares declined 0.4%, amid a shooting that occurred at a San Francisco facility that left at least four dead (http://www.marketwatch.com/story/multiple-people-shot-at-ups-facility-in-san-francisco-shooter-neutralized-reports-2017-06-14-131032755).
H&R Block Inc.(HRB) soared 7.9% after the tax preparer posted better-than-expected earnings (http://www.marketwatch.com/story/hr-block-shares-rally-after-company-beats-eps-sales-expectations-2017-06-13) late Tuesday.
Alexion Pharmaceuticals Inc. (ALXN) shares rallied 9.3% after the drugmaker late Tuesday named as its chief financial officer Paul Clancy (http://www.marketwatch.com/story/alexion-hires-biogen-executive-to-serve-as-its-cfo-2017-06-13), formerly of Biogen Inc.(BIIB) Biogen shares were down 3.1%.
Other markets:European stocks (http://www.marketwatch.com/story/european-stocks-log-gains-with-support-from-tech-sector-fed-outlook-2017-06-14) slipped, while Asian markets (http://www.marketwatch.com/story/asian-markets-gain-as-tech-stocks-bounce-back-2017-06-13) closed mixed.
--Victor Reklaitis in London contributed to this article.
(END) Dow Jones Newswires
June 14, 2017 16:33 ET (20:33 GMT)