Market Update: U.S. Stocks Sputter as Fed Minutes Signal Assertive Rate-Hike Path

U.S. stocks traded lower on Wednesday, with financials diverging from the broader market in anticipation of an assertive rate-hike path by the Federal Reserve. Crypto markets were largely unfazed midweek, though Stellar XLM emerged as the most prominent winner with gains of more than 7%.

Stocks Settle Down

Equity markets drifted between gains and losses before settling mostly lower. The Dow Jones Industrial Average closed down 91.74 points, or 0.4%, at 25,706.68. The technology-heavy Nasdaq Composite Index closed at 7,642.70, where it was virtually unchanged. Meanwhile, the large-cap S&P 500 Index pared gains by the close to settle flat at 2,809.21.

Most major sectors finished in the red, with energy, materials and discretionary shares leading the market lower. Technology stocks also declined sharply. On the opposite side of the spectrum, financials stocks rose more than 0.9% on average.

FOMC Minutes Confirm Need for Higher Interest Rates

Several members of the Federal Reserve’s policy-setting board believe interest rates need to rise higher than the long-term average, according to the official transcript of last month’s meeting, which was released on Wednesday. All members agreed to remove reference to accommodative monetary policy from the official statement.

Central bankers last month voted unanimously to raise the federal funds rate to 2.25%, with the official policy statement making a strong case for an additional hike in December. Rate-hike expectations have been baked into the market, with long-term bond yields soaring to seven-and-a-half year highs.

“Participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2%over the medium term,” the official transcript read.

The U.S. dollar continued higher after the release of the FOMC minutes at 2:00 p.m. ET. The dollar index (DXY), which tracks the performance of the greenback against a basket of six currencies, jumped 0.5% to 95.48.

Crypto Markets Stabilize

With the exception of Stellar XLM, major cryptocurrencies were largely unchanged Wednesday as a lack of trading catalysts kept speculators on the sidelines. The combined valued of digital assets reached a high of $212.7 billion, according to CoinMarketCap. The total market has since fallen back to around $211 billion.

XLM rose to fresh weekly highs on reports that PrimeTrust, a qualified custodian, was rolling out support for Stellar-backed tokens. The XLM token is currently valued at $0.2412.

Bitcoin, the largest digital currency by market cap, consolidated in the mid-$6,500 range following a sharp run-up in prices at the start of the week. BTC continues to trade at a premium on Bitfinex and other exchanges known for facilitating large USDT orders. USDT, the controversial stablecoin issued by Tether, sold off on Monday, underscoring a broad shift in investor sentiment.

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