Wall Street stocks and the dollar offered a muted reaction on Wednesday to the Federal Reserve’s decision to hike interest rates and signal one more increase in 2017.
The Dow edged to a fresh record, while both the S&P 500 and Nasdaq finished lower. The dollar’s losses against the euro moderated after the Fed’s announcement, which was more hawkish than some analysts expected. Overseas stock markets were mixed, with Frankfurt rising, but Tokyo, London, and Paris all declining, reports BSS.
The Fed, as expected, raised benchmark interest rates, citing a better labor market and moderately improving economic activity. The US central bank also continues to project a third rate increase this year, essentially brushing aside weaker inflation and consumption data in recent weeks.
“The third rate hike in seven months, coming not long after a relatively poor Q1 GDP print, suggests the Fed has become less data dependent in its monetary policy decisions,” Fitch Ratings Chief Economist Brian Coulton said.
Joe Manimbo, senior market analyst at Western Union Business Solutions said while the Fed’s “glass half-full assessment of the US economy” should support the dollar, he cautioned that “if the Fed’s view should prove overly optimistic the dollar would be at risk of deepening its recent losses.”
The opposite movements of the Dow and Nasdaq suggested the market was resuming a rotation of investment away from high-flying tech stocks, a trend that first surfaced late last week. Shares of Apple, Google parent Alphabet, and Microsoft all fell.
“On balance you got the continuation of technology stocks selling and the market accepting the Fed decision as consensus,” said Art Hogan, chief market strategist at Wunderlich Securities.
US oil prices plunged over three percent after the release of inventory data – – a key signal regarding energy demand in the world’s biggest economy — showed a smaller-than-expected drop in crude stocks and a rise in gasoline.
Earlier on Wednesday, the International Energy Agency said global oil output will expand faster than worldwide demand next year, primarily as US producers ramp up crude production, and that could hamper exporters’ efforts to prop up prices.
The IEA’s assessment came a day after OPEC complained that increased output in the US was slowing efforts to rebalance supply and demand in the oil market.