US stocks closed lower on Wednesday with the S&P 500 marking its biggest one-day decline in two months, as investors reacted to the more-hawkish-than-expected statement from the Federal Reserve.
The US central bank hiked rates by 25 basis points to a new range of 0.5% to 0.75%, as expected, but also weighed in on a more hawkish outlook for rates than markets had factored in.
The Fed raised interest rates for the first time in a year and only their second in a decade, and officials upped their estimate for 2017 rate rises to three, from a September forecast of two.
Analysts had been anxious about the risk of an increasing number of rate hikes to come. Read more.
The S&P 500 index declined by 0.8%, the steepest slide since October 11, to 2,253.28.
Immediately before the Fed’s rate decision at 1400 ET (1900 GMT) the S&P 500 was unchanged on the day, having meandered in the hours leading up to the conclusion of the meeting.
But as soon as the news was announced the S&P dived – at one point as much as 1%.
The energy sector led the way lower, sliding 2.1%, as the price of oil dropped 4.2% to $50.73, according to the US oil benchmark WTI, as the greenback rose to its highest level in close to 14 years. Utilities and real estate stocks, which are seen as bond proxies and tend to perform poorly in a rising-rate environment, also faced selling pressure.
The S&P Midcap 400 ended sharply lower, by 1.3%, to 1664, led by oil group Noble Corp (NYSE:NE), down 9.4% to $6.46 after the company announced an increase in the maximum tender amount in a cash tender offer for senior notes by one of its subsidiaries.
The S&P Smallcap 600 ended down 1.2% at 838 and led by First Nbc Bank (NASDAQ:FNBC) down 25% to $7.20.
Early trading
US stocks opened lower on Wednesday, as oil prices sagged and investors awaited an almost-certain rate hike from the Federal Reserve later this session.
The S&P 500 market bellwether was down 0.1% at 2269. On Tuesday, it managed to scale 2277.53, yet another intraday record high.
Leading the S&P 500 lower was Universal Health Services (NYSE:UHS), down 5.1% to $103.38 as another law firm reported it is investigating what it alleged were “possible violations of federal securities laws”.
Oil prices, as measured by the US benchmark WTI were down 1% at $52.46. Oil retreated from the highest close since July 2015 as focus shifted to expanding U.S. crude stockpiles after OPEC and other producing nations agreed to cut output to stabilize the market.
Meanwhile, US president-elect, Donald Trump, has formally named the former Texas governor Rick Perry to lead the Department of Energy, adding to the list of oil-drilling advocates sceptical about climate change filling out his cabinet selections.
The S&P Midcap 400 was down 0.5% at 1676 and led by Care Capital Properties Inc C (NYSE:CCP), down 3.8% to $24.10 after reports that investor PNC Financial Services Group Inc. cut its stake by 5.6% during the third quarter and broker Zacks Investment Research cut shares from a buy rating to a hold rating.
On the flipside, Neustar Inc (NYSE:NSR) was up 20% at $33.17 after a private investment group led by Golden Gate Capital said it was buying Neustar in a deal valued at approximately $1.83bn.
Neustar provides communications clearinghouse services. Its shareholders will receive $33.50 per share, a 21% premium to the Sterling, Virginia-based company's Tuesday closing price of $27.65.
The S&P Smallcap 600 was down 0.4% to $845 and led by First Nbc Bank (NASDAQ:FNBC) down 12.6% to $8.39.
The Federal Reserve is widely expected to increase interest rates by 25 basis points at 1400 ET (1900 GMT).
Pre-Open
US stocks are expected to open softer on Wednesday, pausing after posting more record highs the previous session, and wary ahead of a Federal Reserve rate decision this session.
The S&P 500 is indicated opening down 0.1%.
With producer prices inflation in November above market expectations, a year-on-year rise of 1.6% versus a 1.3% forecast, some pundits are rightly calling on investors to receive the Fed’s decision at 1400 (1900 GMT) as a matter of ceremony only. Rates are going up by 25 basis points to a new range of 0.50%-0.75% on Wednesday.
Instead keep an eye on President-elect Donald Trump's Twitter feed. He was a harsh critic of Fed Chair Janet Yellen’s decision to keep rates low during the election campaign, and how the incoming head of state reacts to the expected hike on Wednesday may reveal much about whether and to what extent Trump will try to pressure the central bank through the remainder of her current term, which expires in February 2018.
Top executives from Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and half a dozen other large tech companies are slated to meet with Trump at 2 p.m. Surprisingly, minus Twitter (NYSE:TWTR) Trump’s favoured social media platform.
The focus of the meeting is supposed to be jobs, but it's also expected the executives will discuss trade, corporate tax reform and immigration, among other issues.
Tech leaders across Silicon Valley were broadly supportive of Hillary Clinton. Trump has repeatedly attacked tech companies, although some have made reconciliatory efforts, including IBM (NYSE:IBM), which is attending the meeting too. IBM shares were up 0.1% at $168.50 before the bell.