Dow loses 120 points as Fed increases rates, looks for additional hike in 2018

U.S. stocks came under pressure Wednesday after the U.S. Federal Reserve moved, as expected, to increase interest rates by 25 basis points.

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The Dow Jones Industrial Average fell 119.53 points to 25,201.20. The S&P 500 dropped 11.22 points to 2,775.63. The Nasdaq Composite lost 8.09 points to 7,695.70.

While the hike was anticipated, the Fed is now looking for a total of four rate hikes in 2018 instead of three. Including Wednesday's hike, the Fed has increased short-term rates two times in 2018.

Prior to the Fed’s decision, stocks were flat to higher. After the dust settled following the rate hike, they were flat to lower across the board.

TickerSecurityLastChangeChange %
SP500S&P 5003638.35+8.70+0.24%
I:DJIDOW JONES AVERAGES29910.37+37.90+0.13%
I:COMPNASDAQ COMPOSITE INDEX12205.846315+111.44+0.92%

The difference between the 10-year and the two-year Treasury yield narrowed even further after the Fed decision, falling to their lowest in almost 11 years at one point. The narrowing gap reflects investors’ concerns about the Fed’s intent for an additional rate hike.

“The Fed has telegraphed this hike for months, surprising exactly no one. But confirming suspicions around four instead of thee hikes this year is big news—it will be interesting to watch as rate-sensitive sectors like financials and consumer discretionary benefit from this faster pace,” said Mike Loewengart, vice president of investment strategy at E*Trade. "It shows the Fed isn’t afraid to step it up midcourse throughout the year—that has huge implications for 2019.”

The Fed also raised its expectations for U.S. economic growth, saying GDP will rise 2.8% this year, up from a prior estimate of 2.7%.

In commodities, gold traded lower and oil fractionally higher to $66.64 a barrel. The U.S. Energy Information Administration reported Wednesday morning that U.S. oil stocks declined by 4.1 million barrels in the week ended June 8.