Wall Street ended lower on Wednesday following quarter point interest rate hike by the Fed. Investors were also concerned about the fact that the central bank may opt for one more round of rate hike this year.
The Dow Jones Industrial Average (DJI) closed at 26,385.28, declining 0.4% or 106.9 points. The S&P 500 Index (INX) lost 0.3% to close at 2,905.97. The Nasdaq Composite Index (IXIC) closed at 7,990.37, decreasing 0.2%. A total of 7 billion shares were traded on Wednesday, higher than the last 20-session average of 6.7 billion shares. Decliners outnumbered advancers on the NYSE by 1.60-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.70-to-1 ratio. The CBOE VIX increased 1.6% to close at 12.62.
How Did the Benchmarks Perform?
The Dow ended in the negative territory with 22 components of the 30-stock blue-chip index finished in the red while eight ended in the green. The tech-heavy Nasdaq Composite also finished in the red due to broader market decline.
The S&P 500’s decline was led by a decrease of 1.2% in Financials Select Sector SPDR (XLF), 1.1% decline in Real Estate Select Sector SPDR (XLRE) and 1% drop in both Energy Select Sector SPDR (XLE) and Materials Select Sector SPDR (XLB). Notably, seven out of 11 sectors of the benchmark S&P 500 index ended in the red while four closed in the green.
Federal Reserve Raises Interest Rate
On Sep 26, Fed policymakers along with Chairman Jerome Powell raised the benchmark lending rate by a quarter point following the Federal Open Market Committee’s (“FOMC”) latest policy meeting. Notably, this was the third rate hike this year. Further, the central bank has hinted at another rate hike this year and three more in 2019. The benchmark interest rate has been hiked to 2.25% from 2%.
The Fed has raised the economic outlook for 2018 and provided robust estimates of several key economic metrics including unemployment rate and inflation. Consequently, the booming economic picture persuaded the central bank to raise the benchmark lending rate.
However, market participants remain concerned that higher interest rate will raise the cost of funds. Riskier financial assets like equities will now face competitive pressure from both bond market and liquid cash market as savings bank interest rate will go up. Investors are trying to identify the combined effect of higher interest rates, an additional rate hike this year, expected magnitude of inflation and the impact of ongoing trade conflict with China. All these resulted in a broad-based market decline.
Consequently, shares of some of the major companies including Travelers Companies Inc. (TRV - Free Report) , DowDupont Inc. (DWDP - Free Report) and Chevron Corp. (CVX - Free Report) declined 1.4%, 1.6% and 1.2%, respectively. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
On Sep 26, the Department of Commerce reported that new-home sales in August stood at a seasonally adjusted annual rate of 629,000, up 12.7% year over year. However, the figure was below the consensus estimate of 630,000.
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