U.S. stocks erased gains and closed lower Wednesday after the Federal Reserve raised interest rates and reiterated plans for two more increases this year.
Worries that a pickup in inflation could lead to a quicker-than-anticipated pace of rate increases contributed to last month’s stock-market correction. Some investors had feared the Fed would raise rates four times in 2018, but the central bank reiterated Wednesday plans for three total this year. Still, more officials now think four increases might be necessary, and the Fed also marked up slightly the estimate of interest rates it expects to prevail over the long run.
Some investors worry that higher borrowing costs will slow corporate activity and push up Treasury yields, making stocks less attractive. Wednesday’s Fed statement could comfort some analysts for now who wanted to see the central bank stay on a gradual path, though the longer-term concerns remain, said Michael Hans, chief investment officer of Clarfeld Financial Advisors.
"It was a fairly balanced statement without dramatic changes," Mr. Hans said. "It’s a bit premature to get the pulse of the market to see if this is a considerable benefit for stocks."
The Dow Jones Industrial Average closed down 44.96 points, or 0.2%, at 24682.31, after earlier rising as much as 250 points immediately following the Fed decision. The S&P 500 declined 5.01 points, or 0.2%, to 2711.93, while the Nasdaq Composite fell 19.02 points, or 0.3%, to 7345.29. All three indexes swung between gains and losses for the second straight session following sharp declines to start the week.
The yield on the benchmark 10-year U.S. Treasury note climbed to 2.901% from 2.881% Tuesday. Bond yields rise as prices fall. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, declined 0.8%.
Stocks rose earlier in the session after U.S. trade representative Robert Lighthizer told lawmakers that several key U.S. allies and trading partners won’t face steel and aluminum tariffs until negotiations on possible exemptions wrap up next month.
Worries that protectionist trade policies could spread following the U.S. tariffs expected to take effect Friday and crimp global economic growth have made some money managers anxious in recent weeks. The White House is expected to announce a new raft of punitive measures aimed at China, including levies worth at least $30 billion.
Finance ministers from the Group of 20 countries failed to reach a fresh agreement on trade at a meeting this week in Buenos Aires, a sign that the U.S. and other countries remain split on the matter.
Despite anxiety over rates, trade and lawmakers reaching a deal to keep the government funded, stocks have largely stabilized following big declines last month.
“To me that speaks of underlying strength," said Brad McMillan, chief financial officer at Commonwealth Financial Network. “Even though there are a lot of concerns, the fact that the market continues to hold up suggests this isn’t going to be what derails the rally."
Energy stocks surged alongside oil prices Wednesday after a weekly report showed U.S. inventories surprisingly decreased during the week ended March 16. The S&P 500 energy sector climbed 2.6%, its best day since November 2016. A rise in metals prices boosted materials stocks, which added 1.1%.
Airline stocks were among the worst performers following a downbeat revenue forecast from Southwest Airlines, which slid $2.91, or 4.8%, to $57.78. American Airlines Group dropped 1.23, or 2.2%, to 54.09, and Delta Air Lines fell 55 cents, or 1%, to 55.95.
General Mills dropped 4.42, or 8.9%, to 45.51 after it said higher food and shipping costs hurt profitability in the latest quarter and will weigh on the food maker’s earnings for the year.
Elsewhere, the Stoxx Europe 600 fell 0.2%, with the index’s banking sector among the worst performers. Trading was quiet in Asia, partly because of a Japanese public holiday. Hong Kong’s Hang Seng Index fell 0.4%, while China’s Shanghai Composite Index was down 0.3%.