Today's announcement by Federal Reserve chairman, Janet Yellen, to raise rates for the second time this year by a quarter point to between 1% and 1.25% was expected and already priced in.
The S&P 500 and Nasdaq both closed lower on Wednesday falling -0.27% and -0.74%. The Dow nipped up +0.06%.
What caused the indices to teeter between positive and negative territory today was fresh economic data that showed inflation below; retail sales were at the weakest in 16 months dropping 0.3% in May from the previous month. Consumer prices also fell by 0.1% in May.
- Dow 21,342.09 +0.06%
- S&P 500 2,433.77 -0.27%
- Nasdaq 6,174.47 -0.74%
- Russell 2000 1,417.57 -0.59%
- NYSE Composite 11,779.69 -0.14%
- Gold 1,269.72 -0.78%
- Oil WTI $44.70 -0.07%
- 10-year yield 2.14% -0.07%
Fed tightens policy
Investor focus shifted to the future path of rate hikes. Despite the softer economic data, the Federal Reserve sees the US economy remaining buoyant and indicated it would stick to another rate hike in 2017.
The Fed said it also planned to tackle its balance sheet shrinking its $4.5 trillion holding in government paper and mortgage-backed securities.
Fresh economic data was a guide to investor sentiment as weak inflation data cheered the markets.
Expectations remain that the Fed may abandon lifting interest rates at a rapid rate and opt for a more moderate pace of tightening.
In its Open Market Committee statement it expected that its monetary policy with gradual adjustments could spur economic activity to expand at a moderate pace and for labor market conditions to continue to strengthen.
The Fed also lowered inflation projections stating that out to 2018 "[it] to remain somewhat below 2 percent in the near term but to stabilise around the Committee's 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely."
Heading for safety
Weak economic data sparked worries about the economy pushing investors into traditional safe havens.
Gold rose in early trading before the Fed announcement and then pared gains settling at $1,269.72.
Both the dollar and yields came under pressure. Yields saw the biggest one-day decline for the year tumbling 10.7 basis points earlier to 2.105% before easing at close -0.07 to 2.149%. Bond prices move inversely to yields.
The dollar which was slammed earlier in the day on inflation data recovered against the euro and the yen after the increase. The pound rose to $1.2791 from $1.2756 on Tuesday.
Movers on Nasdaq included pharmaceuticals and biotechs. Health technology company, Alexion Pharmaceuticals, jumped +9.26% to $118 and Vertex Pharmaceutical +1.81% to $124.71. Home Depot went up +1.80% to $156.76.
Techs also retreated Apple declined -0.98% and Microsoft -0.54%.
Oil price plunge below $45
Energy stocks slipped after oil prices plunged near 4% - the lowest level in seven months - to below $45 after industry data showed higher-than-expected US gasoline stock supplies.
According to the US Energy Information Administration gasoline inventories increased by 2.1 million during the week ended 9 June while crude decreased by 1.7 million below what analysts expected suggesting oversupply may extend to crude's products.
The supply is so far outstripping demand. OPEC's recent cuts are not solving the oil glut as quickly as hoped and oil remains in storage.
Saudi energy minister Khalid al-Falih was quoted in WSJ as saying OPEC and Russia would do 'whatever it takes' to bring supply back in line with demand.
Additional problems come in the form of growth in US crude oil production with predictions by the International Energy Agency of 5% on average this year and 8% in 2018 which could put it ahead of Saudia Arabia for daily production.