U.S. stocks erased gains and closed lower Wednesday, hurt by drops in financials and materials stocks after the Federal Reserve raised interest rates and signaled a continued gradual path of increases.
The late-session slip came as Treasury yields fell following Fed Chairman Jerome Powell’s press conference. Some analysts said the move in the bond market stoked worries about a flattening yield curve. That is historically a negative indicator for longer-term growth prospects that hurts financial stocks because higher yields tend to boost lending profitability.
Wednesday’s projections showed most Fed officials expect to raise rates one more time this year and three times next year, a pace in line with the expectations of many investors.
The Federal Reserve raised interest rates on Wednesday and signaled a continued gradual path of increases ahead. Photo: chris wattie/Reuters
While bank stocks fell, materials shares extended their week-to-date declines. Discussions between the U.S. and its trading partners are continuing, adding to anxiety about a growth-hindering tariff fight.
After the S&P 500 and Dow industrials hit fresh records last week, some analysts have said they are re-evaluating trade risks, which could challenge markets at the same time interest rates continue to rise.
“I do feel like markets are largely shrugging them off because there’s no way to know what the actual outcome will be,” said Peter Lazaroff, co-chief Investment Officer at Plancorp. “If they escalate, it would be negative for sentiment.”
The S&P 500 fell 9.59 points, or 0.3%, in a fourth straight session of losses, though it remains near last week’s all-time high. The Dow Jones Industrial Average declined 106.93 points, or 0.4%, to 26385.28. The tech-heavy Nasdaq Composite closed down 17.11 points, or 0.2%, to 7990.37.
On Wednesday, Canada publicly declared that any changes to the North American Free Trade Agreement have to incorporate limits on the U.S. use of tariffs on national-security grounds. The move came after the Trump administration’s top trade negotiator threatened to move forward with a bilateral accord with Mexico amid a lack of progress with Canada on renegotiating NAFTA.
Analysts are also tracking the relationship between the U.S. and China, which canceled trade talks scheduled for this week as a monthslong tariff spat continues.
Worries about a global economic slowdown have hurt commodities this year, and the S&P 500 materials and energy sectors both dropped 1%. Oil prices edged lower after Brent crude, the global benchmark for prices, closed on Tuesday at its highest level since November 2014.
Meanwhile, the drop in Treasury yields sent the financial sector down 1.3%. Some analysts said Wednesday’s Fed decision was largely in line with expectations but that officials largely sticking with previous projections was a less aggressive stance than some investors had anticipated.
“It signals to investors they think the economy is doing great, but not so great that they’re worried about it,” Mr. Lazaroff said.
The yield on the benchmark 10-year U.S. Treasury note fell to 3.059% from 3.102%. Yields, which fall as bond prices rise, have approached seven-year highs lately.
The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, fell less than 0.1%.
Among individual stocks, Nike fell $1.09, or 1.3%, to $83.70 after the sportswear maker said its expenses increased last quarter, though it still topped earnings targets.
Declines in those various sectors offset gains in the recently formed communications-services and health-care sectors. Netflix was among the market’s best performers Wednesday, adding 8.45, or 2.3%, to 377.88.
Elsewhere, the Stoxx Europe 600 climbed 0.3% to its highest level of the month.
Corrections & Amplifications
Government bond prices edged slightly higher Wednesday. An earlier version of this article incorrectly stated that bond prices had fallen. (Sept. 26, 2018)
Write to Amrith Ramkumar at [email protected]