Stocks Fall After Fed Signals June Rate Hike Possible

Stocks are dropping in midday trading Thursday as industrial companies drag major indexes lower. Health care companies also dropped. Investors braced themselves for the likelihood of an interest rate increase in June at the Federal Reserve’s next policy meeting.

KEEPING SCORE: The Dow Jones Industrial Average fell 126 points, or 0.7 percent, to 17,401 at 12:16 p.m. Eastern time. The Standard & Poor’s 500 lost 14 points, or 0.7 percent, to 2,034. The Nasdaq composite fell 43 points, or 0.9 percent, to 4,696.

FED IN FOCUS: The minutes of the Fed’s last meeting, released Wednesday, weighed on markets for a second day. The news that the Fed could be ready to raise interest rates in June came as a surprise to many investors. Policymakers indicated an increase would only be made if the economy and labor market continued to strengthen.

THE QUOTE: “This is all about the Fed,” said Bill Strazzullo, chief market strategist at Bell Curve Trading. “Putting June on the table was something few expected.”

DIVIDEND PAY: Industrial and health care companies each fell 1.3 percent, more than the rest of the market. Those stocks have outperformed the market this year because of their reliable dividends, but higher rates on bonds would diminish the appeal of those stocks to investors seeking income.

DUE FOR A DIP: “Many of these stocks already had significant moves up and were due for a correction,” said Chief Investment Officer Henry Smith of Haverford Trust, referring to high-dividend stocks. “They have decent yields, but high valuations.”

RETAIL ROCKET: Wal-Mart Stores jumped 9 percent after reporting surprisingly strong sales and releasing an optimistic outlook. The stock of the world’s largest retailer rose $5.77 to $68.91.

BUCKING THE TREND: Urban Outfitters jumped $2.18, or 12 percent, to $27.77 after reporting first-quarter sales that exceeded analyst forecasts. The solid results from Urban and Wal-Mart contrasts with dour reports from many other retailers in recent weeks.

MAKE A DEAL: Monsanto rose $4.42, or 4.5 percent, to $101.55 after German drug and chemicals company Bayer confirmed it has entered talks with the U.S.-based seed company.

EUROPE’S DAY: Germany’s DAX fell 1.5 percent while the CAC-40 in France fell 0.9 percent. Britain’s FTSE 100 index was down 1.8 percent.

ASIA’S DAY: The Nikkei 225 index in Tokyo ended flat, while South Korea’s Kospi lost 0.5 percent. Hong Kong’s Hang Seng shed 0.7 percent. Australia’s S&P/ASX fell 0.6 percent. Benchmarks in Taiwan, New Zealand and Southeast Asia also lost ground.

ENERGY: Benchmark U.S. crude oil fell 31 cents to $47.88 a barrel in New York. Brent crude, used to price international oils, dropped 30 cents to $48.63 a barrel in London.

BONDS, CURRENCIES: U.S. government bond prices rose. The yield on the 10-year Treasury note slipped to 1.85 percent from 1.86 percent. In currency trading, the dollar fell to 109.87 yen from 110 yen and the euro fell to $1.1204 from $1.1229.