Market Update: Stocks Fall After Hawkish Fed Raises Interest Rates

Federal Reserve Building

U.S. stocks drifted lower Wednesday after the Federal Reserve raised interest rates and signaled that two more increases are likely this year.

Stocks Sputter

Wall Street finished mostly lower in a session marked by tepid trading conditions. The large-cap S&P 500 Index traded 0.4% lower t9 close at 2,775.63, with nine of 11 primary sectors contributing to the decline.

Shares of telecommunication services plunged more than 4% after a federal judge permitted AT&T’s takeover bid for Time Warner.

Stocks tied to materials and real estate also finished sharply lower on Wednesday.

Dow industrials closed down 119.53 points, or 0.5%, at 25,233.65.

The technology-driven Nasdaq Composite Index reveesed gains to settle down 0.1% at 7,695.70.

Implied volatility, as conveyed by the CBOE VIX, edged higher on Wednesday but continued to trade well below its historic norm. The so-called “fear index” climbed nearly 5% to 12.94.

Fed Hikes Interest Rates

The Federal Reserve lifted interest rates on Wednesday and set the stage for two more upward adjustments this year, a sign policymakers were becoming more convinced about the direction of the economy.

Federal Open Market Committee (FOMC) members voted to lift the target for the benchmark rate to 2% from 1.75%. In communicating their decision, policymakers revised key terminology by stating economic growth has been “rising at a solid rate.” In May, the Fed described economic expansion as being “moderate.”

The Fed’s guidance vindicates an earlier forecast by Goldman Sachs, which called for a total of four rate hikes this year. The forecast was posited at a time when the majority of analysts had expected only three rate adjustments for 2018.

Cryptocurrencies Extend Collapse

Digital assets on Wednesday shed another $14 billion in market capitalization, as bitcoin eyed February lows and the broader altcoin universe continued its freefall.

By the late afternoon, the cryptocurrency market was valued at $267 billion, according to CoinMarketCap. Daily trade volumes picked up to around $17 billion but remain well off year-to-date averages.

A combination of investor fatigue, negative news headlines and regulatory bottlenecks have all been suggested as possible reasons for the market’s latest collapse. In the absence of bullish sentiment, negative news coverage has only heightened investors’ frustration.

Crypto prices have declined more than $70 billion since Friday and are fast-approaching their year-to-date lows.

Bitcoin is down more than 4% from Tuesday levels and is currently trading around $6,317. Its share of the total market has increased to over 40% as altcoins continue to bleed. With the exception of Tether, a dollar-backed stablecoin, all major cryptocurrencies in the top-20 booked losses on Wednesday.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi