Stocks de­cline after Fed’s rate pre­dic­tion

Houston Chronicle - - MARKET SUMMARY - By Mar­ley Jay

NEW YORK — 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&T-Time 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.

In­vestors now view CVS’ ef­fort to buy health in­surer Aetna as more likely to go through, and they felt sim­i­larly about Cigna’s of­fer for phar­macy ben­e­fits man­ager Ex­press Scripts. T-Mo­bile USA and Sprint made smaller gains. In­vestors have been skep­ti­cal the govern­ment would al­low the third- and fourth-largest wire­less car­ri­ers to com­bine.

Erik Gor­don, a pro­fes­sor at the Univer­sity of Michi­gan’s Ross School of Busi­ness, said the rul­ing is prob­a­bly a good sign for the two health care deals be­cause, like AT&T and Time Warner, those ac­qui­si­tions won’t re­duce the num­ber of com­pa­nies com­pet­ing in an in­dus­try, un­like a Sprint-T-Mo­bile merger. But in­vestors might be draw­ing overly broad con­clu­sions from the rul­ing, Gor­don said.

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