Wednesday’s Stock Market Close: US Equities Close Mixed As Fed Will Keep Rates Near Zero Through At Least 2022

U.S. stocks finished mixed in erratic trading on Wednesday as the Federal Reserve kept rates unchanged and said they will remain at that level through the end of 2022 at least. Nasdaq closed above the 10,000 level for the first time.

The Dow Jones Industrial Average dropped 282.31 points to 26,989.99, while the S&P 500 fell 17.04 points to 3,190.14 and the Nasdaq Composite Index rose 66.59 points to 10,020.35.

Wednesday’s volume on the New York Stock Exchange totaled 5.76 billion shares with 830 issues advancing, 39 setting new highs, and 2,157 declining, with one stock setting new lows .

Active movers were led by Hertz Global Holdings Inc. (HTZ), American Airlines (AAL) and Ford Motor Co. (F).

As expected, the Federal Reserve kept its benchmark federal funds rate unchanged at zero to 0.25% and said it will maintain this target range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The central bank also projected the U.S. economy will shrink by 6.5% in 2020, then gain 5% next year, followed by an 3.5% increase in 2022.

The Fed said the coronavirus outbreak is “causing tremendous human and economic hardship” across the U.S. and around the world. “The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses,” the central bank added. “Weaker demand and significantly lower oil prices are holding down consumer price inflation… The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

The Fed further noted it will “increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”

Fed Chairman Jerome Powell later said the central bank’s economic forecasts were made with the “general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero.”

Powell added: “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates. What we’re thinking about is providing support for the economy. We think this is going to take some time.”

“Analyzing the Fed’s economic projections at this time when much of the economy is still opening is riddled with uncertainties. This is an economic recession with no precedent,” said Danielle DiMartino Booth, CEO of Quill Intelligence and former advisor to the Dallas Fed.

“I don’t think the Fed is going to back off at all here,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. “This is a longer-term endeavor. We think rates are going to be on hold here for a long period of time. And, when you look at some of their programs, they’re just getting these lending facilities up and running.”

The U.S. Bureau of Labor Statistics reported Wednesday that its consumer price index declined 0.1% in May on a seasonally adjusted basis after dropping 0.8% in April.

The Mortgage Bankers Association said applications for home loans climbed 5% last week from the prior week and were up 13% from a year ago.

The Organization for Economic Co-operation and Development warned the global economy could shrink by 7.6% this year if a second outbreak of covid-19 strikes.

Overnight in Asia, markets finished mixed. The Shanghai Composite fell 0.42%; Hong Kong’s Hang Seng slipped 0.03%; while Japan’s Nikkei-225 edged up 0.15%.

In Europe markets finished lower, as Britain’s FTSE-100 slipped 0.1%, while France’s CAC-40 dropped 0.82% and Germany’s DAX fell 0.7%.

Crude oil futures rose 0.56% at $39.16 per barrel, Brent crude fell 1.05% at $41.29. Gold futures gained 1.52%.

The euro edged up 0.44% at $1.1388 while the pound sterling rose 0.24% at $1.2758.

The yield on the 10-year Treasury plunged 9.77% to 0.748% while yield on the 30-year Treasury fell 3.98% to 1.52%.