By Joy Wiltermuth and Mark DeCambre
U.S. stocks finished mostly lower Wednesday and bond yields jumped, after the Federal Reserve signaled rate hikes are on the way and other monetary policies eventually will tighten.
Investors also were sifting through quarterly results, including a fresh batch of earnings from Boeing, AT&T, and Tesla.
How did stock index perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.98% fell 129.64 points, or 0.4%, to finish at 34,168.09, after earlier pushing as high as 34,815.67.
The S&P 500 index SPX shed 6.52 points, or 0.2%, ending at 4,349.93.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.59% added 2.82 points, or less than 0.1%, to close at 13,542.12. Major indexes traded at or near session highs immediately after the Fed announcement.
What drove the markets?
Stocks lost their grip on earlier gains Wednesday in another volatile session, after the Federal Reserve at its first meeting of 2022 kept benchmark interest rates steady, but signaled that monetary policy will soon tighten.
Fed Chairman Jerome Powell said the Fed “was of a mind” to raise the federal-funds rate at its mid-March meeting, but said policy makers also reached no decisions yet on the path of monetary support.
Instead, Fed officials will remain “nimble” and leave it to coming meetings to decide how high to raise rate or “significantly reduce” the central bank’s near $9 trillion balance sheet. The reduction is slated to start once rate increases have begun.
Powell told reporters there was significant room to raise interest rates without hurting the labor market and didn’t rule out the prospect of rate increases larger than 25 basis points given the scope of the inflation challenge.
“All of this seemed to sink the spirit of the market a bit,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network, in emailed comments.
“The Fed took a hammer out of its toolbox, and not a sledgehammer,” said Rich Steinberg, chief market strategist at The Colony Group, in a phone call. “While we might have some swoons and rallies in markets, I think Powell is playing by the playbook, which is incrementalization.”
Markets remain eager for a clearer road map to tighter monetary policy, including specifics on how the Fed expects to shrink its balance sheet.
“Big picture, we are still positive on the equity market,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, in a phone call. “Usually, when the economy is this strong, the market tends to have good results.”
Stocks have been whipsawed by recent volatility, driven by disappointment over corporate earnings so far this quarter, tension between Russia and NATO over concerns that Moscow may be planning an imminent invasion of Ukraine, and, most of all, apprehension over the Fed’s path to fighting inflation.