By Joy Wiltermuth and Christine Idzelis
U.S. stocks closed lower Wednesday after the Federal Reserve opted to keep rates near zero, as expected, and monetary policy loose at the conclusion of its two-day policy meeting.
Investors also geared up for President Joe Biden to unveil a new $1.8 trillion package of spending and tax cuts Wednesday evening that aims to bolster children and families.
How did major indexes perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.58% fell 164.55 points, or 0.5%, ending at 33,820, near the session low.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.31% shed 3.54 points, or 0.1%, finishing at 4,183.18, after hitting an all-time intraday high of 4,201.53.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.92% closed down 39.19 points, or 0.3%, at 14,051.03.
The Russell 2000 /zigman2/quotes/210598147/delayed RUT -2.17% rose 2.892 points, or 0.1%, to close at 2,304.16.
On Tuesday, major benchmarks were largely in a holding pattern , with the Dow /zigman2/quotes/210598065/realtime DJIA -1.58% posting a gain of 3.36 points, or less than 0.1%, at 33,984.93, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.31% shed less than 0.1% and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.92% gave up 0.3%.
What drove the market?
Stocks bounced around Wednesday afternoon, but finished lower after Federal Reserve Chair Jerome Powell vowed to keep benchmark interest rates near zero and said policy will stay accommodative for some time, despite rising inflation.
Fed officials also said the U.S. economy and employment picture have “strengthened” and that inflation has climbed, but called the increase “transitory.”
Powell stressed that the vaccination push in the U.S. strengthened the economy, in an afternoon press conference, while echoing the Fed’s policy statement about staying committed to keeping policy settings loose until about 8 millions jobs lost to the pandemic can be recouped and until inflation tracks above its 2% “for some time.”
“What Powell is really trying to emphasis is that we are not there yet,” said Kathy Jones, chief fixed income strategist at Schwab Center for financial research, adding that he also stressed that it’s premature to talk about tightening or tapering.
“He also emphasized that he wants to see inflation move above 2% and stay there,” Jones told MarketWatch.
Stocks struggled for direction all week, with benchmark indexes trading near all-time highs, despite strong corporate earnings reports and economic data as investors assess how much good news already has been factored into the market.
“This combination of easy monetary policy, expansionary fiscal policy and healthy household balance sheets has given rise to fears of overheating,” Scott Clemons, chief investment strategist at Brown Brothers Harriman, wrote in emailed commentary, but added that those “fears are overdone, particularly as earnings estimates continue to rise and provide more fuel to markets.”
While the market may be expensive based on current valuations, Clemons thinks that “at 23x 2021 full year forecasts, valuations are reasonable.” As a counterpoint, John Higgins, chief markets economist at Capital Economic, said the stock market will struggle for the next two years , because Wall Street’s views on earnings expectations are getting out of hand.
Largely positive earnings results rolled in from a number of major technology companies and other corporate heavyweights late Tuesday and Wednesday, with more to come as one of the busiest weeks of reporting season continues. Facebook /zigman2/quotes/205064656/composite FB -2.04% and Apple /zigman2/quotes/202934861/composite AAPL -1.01% report report after the market close Wednesday.