The Morning Journal (Lorain, OH)
Stocks slip on interest rate increase
U.S. stocks slipped after the Federal Reserve raised interest rates and plans to increase rates two more times.
U.S. stocks slipped Wednesday after the Federal Reserve raised interest rates and said it expects to increase rates two more times by the end of the year. Investors bet that several huge deals are more likely to happen after a federal court cleared AT&T’s $85 billion purchase of Time Warner.
Wall Street was already certain the Fed would raise interest rates Wednesday. The central bank’s decision makers also said they plan to raise rates two more times later this year for a total of four increases. Investors had debated all year if rates would rise three or four times, and some are concerned that if rates rise that quickly, it could stifle economic growth because consumers and businesses will have to pay more to borrow money.
The Fed’s projections might have been unwelcome, but they weren’t a shock: for months there have been signs the economy is getting stronger. Another came on Wednesday, when the Labor Department said wholesale prices climbed at a faster pace in May. The Fed says inflation is likely to increase and projects unemployment will hit a 50-year low in a few months, and it wants to keep inflation under control.
“There was nothing terribly surprising in the announcement,” said Jeremy Zirin, head of investment strategy for UBS’ global wealth management business. He said the Fed’s new forecasts “appeared largely to simply reflect the economic reality of the last two or three months.”
He added that the Fed didn’t have a big change of heart either: the Fed’s projections changed because one additional policymaker forecast four rate increases instead of three.
The ruling in the AT&TTime Warner trial sent ripples through the media and telecommunications industries. Shares of Twenty-First Century Fox jumped as investors anticipated Comcast’s offer for Fox’s entertainment businesses. It came just after trading ended, as Comcast announced a $65 billion bid. The ruling also gave investors more confidence that two big takeovers in the health care field will now go through.
The S&P 500 index fell 11.22 points, or 0.4 percent, to 2,775.63 after it closed at a four-month high Tuesday. The Dow Jones industrial average lost 119.53 points, or 0.5 percent, to 25,201.20.
The Nasdaq composite slipped 8.09 points, or 0.1 percent, to 7,695.70.
The Russell 2000 index of smaller-company stocks shed 5.76 points, or 0.3 percent, to 1,676.54. points. Both indexes finished at record highs Tuesday.
Judge Richard Leon said AT&T can buy Time Warner and rejected the government’s argument that the deal would stifle competition and lead to higher cable bills.
The purchase will give the wireless and cable giant control of CNN, HBO and the Warner Bros. movie studio. Time Warner climbed 1.8 percent to $97.95 while AT&T lost 6.2 percent to $32.22.
Media companies rallied. Netflix gained 4.4 percent to $379.93 and CBS gained 3.6 percent to $54.26.
Comcast had said it was preparing to make an offer for Fox’s entertainment divisions, but was waiting for the judge’s ruling. Fox jumped 7.7 percent to $43.66 Wednesday and was little changed in late trading. Comcast fell 0.2 percent to $32.32.