Fed words make stocks wobble

Banks, bonds climb, but an expert worries about impact of another rate hike

U.S. stock indexes overcame an afternoon wobble to close mostly higher Wednesday after the Federal Reserve said it would start reducing its huge bond portfolio next month and was still on track to raise interest rates later this year.

The central bank’s announcement drove bond yields higher, lifting shares in banks and other financial companies. Banks benefit from higher bond yields because it means they can charge higher interest rates on loans.

High-dividend stocks like utilities and household goods makers fell.

Income-seeking investors find those stocks less appealing when bond yields move higher.

“The announcement was pretty much in line with what was expected,” said David Chalupnik, head of equities at Nuveen Asset Management. “So far, the market is taking it in stride, but I don’t know if it should. This will slowly impact growth.”

The Standard & Poor’s 500 index inched up 1.59 points, or 0.1 percent, to 2,508.24. The Dow Jones industrial average rose 41.79 points, or 0.2 percent, to 22,412.59. The modest gains nudged both indexes to record highs, extending a run of milestones that stretches back to last week.

The Nasdaq composite lost 5.28 points, or 0.1 percent, to 6,456.04.

The Russell 2000 index of smaller-company stocks added 5.02 points, or 0.4 percent, to 1,445.42.

The prospect of another Fed rate hike this year at a time when the U.S. economy is growing modestly and may slow somewhat from the impact of hurricanes Harvey and Irma, could be bad news for stocks the next few weeks, Chalupnik said.

“At least over the near term, probably between now and the end of October, the market is at risk,” he said. “And it’s at risk because of lower economic numbers, higher interest rates and earnings that, on an individual-company basis, could disappoint if they were impacted by hurricanes Harvey and Irma.”

Following the announcement, bond prices slumped, sending the yield on the 10year Treasury note to 2.27 percent from 2.25 percent late Tuesday.

Investors also bid up shares in banks and other financial companies, which led the gainers. Zions Bancorporation climbed 70 cents, or 1.6 percent, to $45.11. Raymond James Financial rose $1.15, or 1.4 percent, to $82.32.

Benchmark U.S. crude added 93 cents, or 1.9 percent, to settle at $50.41 a barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, gained $1.15, or 2.1 percent, to $56.29 a barrel in London.