Stocks fall as rate-cut hope dashed

Stocks gave up some early gains and ended broadly lower Wednesday after the head of the Federal Reserve appeared to downplay the possibility of an interest-rate cut this year, something some investors had been hoping for.

The S&P 500 index fell 22.10 points, or 0.8%, to 2,923.73.

The Dow Jones industrial average lost 162.77 points, or 0.6%, to 26,430.14. The Nasdaq composite dropped 45.75 points, or 0.6%, to 8,049.64. The Russell 2000 index of smallercompany stocks gave up 14.83 points, or 0.9%, to 1,576.38.

The Fed’s decision to leave its benchmark interest rate alone was widely expected as analysts see signs of renewed economic health but unusually low inflation. The announcement reaffirmed a message that has reassured investors since the start of the year: No rate increases are likely anytime soon.

The low-rate policy is helping to keep borrowing costs down and supporting an economy that’s been growing steadily since late last year.

“There really wasn’t anything in the Fed statement that should have spooked investors,” said Karyn Cavanaugh, senior markets strategist at Voya Investment Management, adding that a rate cut wouldn’t be an appropriate move against the backdrop of a U.S. economy that grew at a 3.2% annual rate in the first three months of this year and a national unemployment rate below 4%.

“I don’t think investors who were anticipating a rate cut were being very realistic,” Cavanaugh said.

The U.S. stock market has been riding high this year, making its way back from a nose dive at the end of 2018. The Fed spurred the market’s recovery earlier this year when it signaled that it would take a patient approach to raising interest rates.

On Wednesday, the central bank once again reassured investors that it is unlikely to raise rates in the coming months. The Fed raised rates seven times from 2017 through 2018.

The Fed also expressed a more upbeat view of the economy, saying that “economic activity rose at a solid rate.” In March, the Fed had said it appeared that growth had slowed from the fourth quarter of last year.

“The Fed action is a positive because it means that rates are going to remain low,” said Tom Martin, senior portfolio manager with Globalt Investments. “And if there was anything that looked like it could be harmful, the Fed is standing ready to consider more accommodation.”

Soon after the Fed issued its statement, stock prices rose modestly. The yield on the 10-year Treasury note, which influences mortgages and some other loans, fell slightly.

But the trajectory for stocks changed course as Fed Chairman Jerome Powell fielded questions from reporters. At one point, he declined to say whether some investors are misguided in expecting the U.S. central bank to trim interest rates this year, something traders have been betting will happen before year’s end.

“The committee is comfortable with our current policy stance,” Powell said.

The U.S. dollar spiked versus other currencies as Powell spoke. Bond prices ended up little changed, with the yield on the 10-year Treasury note holding at 2.5%.

Banks, energy companies and makers of household goods took some of the heaviest losses Wednesday. Only real estate stocks eked out a slight gain.

Stocks had rallied earlier in the day as large U.S. companies continued to surprise investors with solid profits.