U.S. benchmark stock indexes closed mostly lower Wednesday, after the Federal Reserve said it would likely hold interest rates near zero until at least 2023 given the outlook for inflation and employment in the wake of the coronavirus pandemic, but also indicated risks to the economy remain.
Initially, good earnings from the likes of FedEx provided some support, as did talk of coronavirus vaccine distribution plans by the White House, and upbeat sentiment about the latest batch of IPOs, including the cloud software company, Snowflake.
How did equity benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.57% added 36.78 points, or 0.1%, to finish at 28,032.38, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.72% shed 15.71 points, or 0.5%, closing at 3,385.49. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.87% index fell 139.85 points, or 1.3%, after flipping between positive and negative territory in the session.
The Russell 2000 Index /zigman2/quotes/210598147/delayed RUT -1.49% of small-capitalization companies, rose 14.18 points, or 0.9%, to close at 1,552.33.
On Tuesday, the Dow rose 2.27 points to finish at 27,995.60, while the S&P 500 gained 17.66 points, or 0.5%, to trade at 3,401.20, marking its third straight increase. The Nasdaq finished up 133.67 points, or 1.2%, at 11,190.32, logging back-to-back gains.
What drove the market?
Stocks gave up earlier gains to close mostly lower Wednesday, after the Fed indicated it will keep rates near zero through at least 2023, but also warned of risks to the economy without additional fiscal stimulus during the coronavirus pandemic.
The Dow initially climbed 300 points in afternoon trade, after the Fed’s rate-setting committee indicated that future rate hikes will hinge on at least two things: labor market conditions return to the “maximum employment” and inflation has risen to 2% and “is on track to moderately exceed 2% for some time.
But those gains faded after Fed Chair Powell reiterated that the economic downturn resulting from the pandemic is “the most severe in our lifetime,” in an afternoon news briefing. To that end, the central bank expects to keep up its “full range” of support up for some time, including its current $120 billion monthly pace of assets purchases in the form of government Treasurys and mortgage bonds until the economy is “far along in its recovery.”
Kathy Jones, Charles Schwab’s chief fixed-income strategist, said it boils down to the Fed confirming, once again, that it’s committed to doing all it can to support the economy, but that it wants to see Congress do more to blunt the pandemic’s carnage.
“I’ve never in my career heard so many Fed officials basically pleading for fiscal policy,” Jones told MarketWatch. “I think every time it comes up, and we realize it’s not happening yet, it weighs on the risk assets.”
Further, the Fed’s outline for a future where interest rates likely stay at zero for at least the next three years “is not a positive signal for the economy,” Jones said.
Powell said the economy likely risks ongoing unemployment stress, as well as an uptick in evictions and foreclosures, “things that will scar the economy,” without additional fiscal support from Congress, during his briefing.
It was the first policy statement and updated economic forecasts under the Fed’s new flexible inflation target strategy announced last month.
Here’s a recap : Fed decision day
Investors have come to expect a prolonged period of support from the Fed, which has helped bolster the U.S. stock market since its lows during the coronavirus crisis in March, but many also have been waiting on Congress to pass a spending package.