Market Update: U.S. Stocks Mostly Lower as Fed Holds Interest Rates at 2%

U.S. stocks traded mostly lower on Wednesday, pressured by rising bond yields and a more hawkish Federal Reserve.

Stocks Mixed

The S&P 500 Index came off session lows but still settled down 0.1% at 2,813.36. Most of the primary sectors tracked by the large-cap index finished in negative territory, with energy and industrials shares falling at least 1.3%.

The S&P 500’s information technology index rose 1% after Apple Inc.’s (AAPL) stellar earnings call propelled the stock to record highs.

The Dow Jones Industrial Average declined 81.37 points, or 0.3%, to close at 25,333.82.

Rebounding tech shares powered the Nasdaq Composite Index to higher ground. The tech-laden index rose 0.5% to 7,707.29.

Fed’s Positive Outlook Signals More Rate Hikes Ahead

The Federal Reserve voted unanimously to keep interest rates on hold Wednesday and upgraded its assessment of the U.S. economy, signaling a readiness to continue normalizing monetary policy later this year.

Members of the Federal Open Market Committee (FOMC) noted that “economic activity has been rising at a strong rate,” a more optimistic view than in June, when officials characterized the recovery as being “solid.” The upgrade comes in the wake of impressive GDP figures showing the economy accelerated 4.1% annually in the second quarter, the fastest in almost four years.

The Fed’s next meeting, scheduled for September, is expected to result in the third interest rate hike of 2018. Markets are pricing in a fourth upward adjustment by December.

The 10-year U.S. Treasury yield, which reached 3% on Wednesday for the first time since June, pared gains after the Fed announcement.

Economic Data

The U.S. labor market accelerated last month as private-sector employers got a boost from lower taxes, payrolls processor ADP Inc. reported Wednesday.

Private payrolls surged by 219,000 in July, compared with an expected gain of 185,000. Roughly 81% of the new jobs added were concentrated in the services sector.

“The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending,” said Mark Zandi, chief economist of Moody’s Analytics, in a statement. “Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signaling the threat.”

Separately, the Institute for Supply Management reported a cooldown in U.S. manufacturing activity in July, though the underlying picture remained positive. ISM’s manufacturing purchasing managers’ index (PMI) fell to 58.1 from 60.2 in June on a scale where 50 separates expansion from contraction.

Oil prices fell on Wednesday after the U.S. Energy Information Administration (EIA) reported an unexpected surge in crude inventories. Stockpiles of commercial crude rose by 3.8 million barrels last week, to 409 million barrels, EIA data showed. Analysts had called for a weekly decline of 2.8 million barrels.

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