U.S. stock indexes are slipping Wednesday after the Federal Reserve raised interest rates for only the second time in a decade on the back of a strengthening job market.
Utilities and real estate companies, which would stand to lose more than other companies from rising interest rates, fell more than the rest of the market. Banks, which would benefit from higher rates since they can charge more to lend money, held up better than other sectors.
Bond prices fell, sending yields higher.
KEEPING SCORE: The Dow Jones industrial average fell 49 points, or 0.3 percent, to 19,856, as of 2:30 p.m. The Standard & Poor’s 500 index was down 9 points, or 0.4 percent, at 2,261. The Nasdaq composite gave up 16 points, or 0.3 percent, to reach 5,446. More than two stocks fell for every one that rose on the New York Stock Exchange.
CENTRAL BANK ACTION: The Fed raised a key short-term interest rate as it saw improvements in the U.S. economy and the possibility of higher inflation. It had kept rates close to zero since the Great Recession in hopes of driving economic growth and averting a downward spiral in prices, a condition that economists call deflation.
But the unemployment rate has dropped to 4.6 percent, its lowest level since before the Great Recession. That, plus the steady and modest growth the economy is experiencing, was enough to push the Fed to raise its key short-term rate on Wednesday for the first time since last December.
Investors are expecting more increases to follow in 2017. Fed policymakers expect to raise the federal funds rate three times in 2017, up from their prior forecast of two.
The central bank is walking a delicate balance: Higher interest rates make borrowing more expensive, which can slow corporate profits and economic growth, but one of the worst-case scenarios for the economy would be if inflation were to race higher because the Federal Reserve was too slow to raise rates.
BOND YIELDS: The yield on the 10-year Treasury note jumped to 2.51 percent, up from 2.47 percent late Tuesday, and continued its upward trend over the last month. Interest rates have been climbing since the U.S. presidential election on expectations that inflation and economic growth may be heading higher.
The yield on the two-year Treasury rose to 1.22 percent from 1.17 percent, while the 30-year Treasury bond yield held steady at 3.13 percent.
DIVIDEND STOCKS STRUGGLE: Higher yields make bonds look more attractive to investors seeking income, and that could mean less demand for stocks that pay dividends.
Utilities, real-estate investment trusts and other big-paying dividend stocks were some of the biggest winners in recent years as investors scrounged for income given the record-low rates. Those same sectors had some of the biggest declines following the Fed’s announcement.
Utilities fell 1.3 percent, most among the 11 sectors that make up the S&P 500. Real-estate stocks fell 1.2 percent.
Financial stocks held up better than other sectors and were down just 0.1 percent. Higher interest rates could help boost profits for banks.
ECONOMIC DATA: Reports released Wednesday offered a mixed picture of the U.S. economy. Retail sales edged up by just 0.1 percent in November, a weaker showing than economists expected.
Inflation at the wholesale level was higher than expected last month, though economists said it still looks fairly tame, while industrial production weakened.
SKIDDING: Hertz Global Holdings fell $1.60, or 6.4 percent, to $23.53 after the struggling car rental company named a new chief executive officer. The company’s three longest-serving directors will also leave the board next month.
STICK WITH IT: Nordson, a maker of products that apply adhesives and coatings, rose $8.79, or 8.4 percent, to $113.06 after reporting higher sales and earnings than analysts expected. It also said orders look strong for its current quarter.
GOING PRIVATE: Neustar jumped $5.52, or 20 percent, to $33.17 after a group of private investors said it would buy the communications company for $33.50 per share in cash.
GLOBAL MARKETS: In Europe, Britain’s FTSE 100 dipped 0.3 percent, while Germany’s DAX fell 0.4 percent and France’s CAC 40 lost 0.7 percent.
In Asia, Japan’s Nikkei 225 finished nearly unchanged at 19,253.61, just a titch above its one-year high close on Tuesday. South Korea’s Kospi and Hong Kong’s Hang Seng index also were up marginally.
COMMODITIES: Benchmark U.S. crude fell $1.22, or 2.3 percent, to $51.76 per barrel in New York. Brent crude, the international standard, fell $1.50 to $54.26 a barrel in London. Gold fell $4.70, or 0.4 percent, to $1,154.30. Silver was virtually flat, and copper fell 0.1 percent.
CURRENCIES: The dollar rose against many of its rivals. It climbed to 116.31 Japanese yen from 115.23 late Tuesday. The euro fell to $1.0579 from $1.0622 late Tuesday. The British pound fell to $1.2619 from $1.2667.