NEW YORK, Sept 27 — A Wall Street rally collapsed and stocks turned negative shortly before the market close yesterday after investors reassessed the Federal Reserve’s policy statement and reduced their risk as they weighed how long the US central bank would continue to raise interest rates.
US stocks initially extended gains after the Fed, as expected, raised interest rates and left its monetary policy outlook for the coming years largely unchanged amid steady economic growth and a strong job market.
But the market reversed course as investors weighed to what degree the elimination of the word “accommodative” from the Fed’s policy statement suggested that the end of a cycle of interest-rate hikes might be in sight.
The Fed lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 per cent to 2.25 per cent.
“People misinterpreted the removal of ‘accommodative’ in the statement,” said Mike O’Rourke, chief market strategist at JonesTrading. “People realised that monetary policy remains on course and there are expectations of another rate hike this year, and they unwound purchases they made on the release of the statement, and also additional de-risking going into the close.”
The S&P 500 financial index fell 1.27 per cent, leading declines.
The S&P 500 utilities index and real estate index , which are sensitive to interest rates because their components are often favoured for their dividend yields, each fell over 1 per cent.
The Fed still foresees another rate hike in December, three more next year, and one increase in 2020.
Fed Chairman Jerome Powell said after the policy meeting that the US central bank is closely monitoring inflation, underscoring concerns the US economy’s rapid growth could lead to overheating and force the Fed to raise rates further.
Referring to the removal of the word “accommodtive,” Powell said, “This change does not signal any change in the likely path of policy. Instead, it is a sign that policy is proceeding in line with our expectations.”
The stock market has enjoyed a boom period and is at record levels. But as rates rise, equities face rising competition for investors’ funds not only from bonds, but also from cash, which is now the most attractive it has been in about a decade.
The Dow Jones Industrial Average ended down 0.4 per cent at 26,385.28 points, while the S&P 500 lost 0.33 per cent to 2,905.97. During the session, the S&P 500 traded up as much as 0.53 per cent.
The Nasdaq Composite dropped 0.21 per cent to 7,990.37.
The S&P 500 health index rose 0.20 per cent, led by biotechs, while the newly formed communication services index rose 0.35 per cent, boosted by Facebook, which gained 1.24 per cent.
Twenty-First Century Fox rose 1.02 per cent after agreeing to sell its stake in Sky to Comcast, which dipped 0.08 per cent. Walt Disney Co, which is buying Fox, jumped 1.39 per cent.
Nike fell 1.3 per cent as the sportswear maker stuck to its full-year forecast even after sales got a boost from a controversial ad campaign featuring former NFL player Colin Kaepernick.
Declining issues outnumbered advancing ones on the NYSE by a 1.60-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favoured decliners.
The S&P 500 posted 31 new 52-week highs and 12 new lows; the Nasdaq Composite recorded 66 new highs and 73 new lows.
Volume on US exchanges was 7.0 billion shares, compared to a 6.7 billion average over the last 20 trading days. — Reuters
Source: The Malay Mail Online