U.S. stocks indexes close mostly higher after Fed rate hike
The major U.S. stock indexes finished mostly higher Wednesday, with small companies notching big gains as lawmakers in the House and Senate reached a deal on a sweeping tax reform package.
The Dow Jones industrial average eked out its third record-high close in as many days, driven by a jump in Caterpillar. But a lastminute pullback in bank stocks left the Standard & Poor’s 500 index slightly lower.
Packaged food and beverage stocks, health care companies and industrials shares accounted for much of the market’s modest gains. Banks struggled as long-term bond yields edged lower, which makes it tougher for banks to earn money from lending.
The decline in financial stocks came even as the Federal Reserve raised its benchmark rate for the third time this year. The move, which was widely expected, came as the central bank noted that the U.S. economy was on sound footing.
“Widely expected. No big surprises. No big changes,” said Tim Dreiling, regional investment director at U.S. Bank Wealth Management. “It’s encouraging that they continue to see economic growth continuing into 2018, which aligns with our thinking.”
The S&P 500 index slipped 1.26 points, or 0.1 percent, to 2,662.85. The index closed at all-time highs on Monday and Tuesday.
The Dow gained 80.63 points, or 0.3 percent, to 24,585.43. The Nasdaq added 13.48 points, or 0.2 percent, to 6,875.80. The Russell 2000 index of smaller-company stocks picked up 8.33 points, or 0.6 percent, to 1,524.45.
Bond prices rose. The yield on the 10-year Treasury fell to 2.34 percent from 2.40 percent late Tuesday.
Trading got off to a subdued start Wednesday as investors waited for the afternoon policy update from the Fed.
As expected, the central bank raised the federal funds rate — what banks charge each other for short-term loans — by 0.25 percentage points to a still-low range of 1.25 to 1.5 percent. The latest short-term rate increase is the third one implemented by the Fed this year and signals the central bank’s confidence that the U.S. economy remains on solid footing 8½ years after the end of the Great Recession.
The Fed also said it expects the job market and the economy to strengthen further next year, which is one reason it forecast that it would raise rates three times next year.
Developments out of Washington put investors in the mood to buy small company shares about two hours before the Fed’s announcement. Republican leadership in the House and Senate forged an agreement Wednesday on the GOP’s planned overhaul of the nation’s tax laws. The move paves the way for final votes next week to slash taxes for businesses and give many Americans modest tax cuts starting next year. Smaller companies stand to benefit most from a reduction in corporate tax rates because they tend to pay higher taxes than bigger corporations.
“If you look at the mix today, small caps are doing better than large caps,” said Sameer Samana, global technical and equity strategist for Wells Fargo Investment Institute. “Clearly, they would be the better beneficiaries because they tend to pay higher tax rates.”
Packaged food and beverage companies posted solid gains. Coca-Cola rose 61 cents, or 1.3 percent, to $45.90.
Health care stocks also rose. Incyte climbed $2.70, or 2.8 percent, to $98.10.
Caterpillar led the gainers among industrials stocks, adding $5.15, or 3.6 percent, to $148.57. The construction and mining equipment company was also the biggest gainer in the Dow.