Stocks finished mostly lower Wednesday, after the Federal Reserve raised the federal funds target rate by 25 basis points to 5%, as expected. Trading was choppy following the news, but the market did not show a clearly positive or negative reaction by the close, says Standard & Poor's Equity Research.
The Dow Jones industrial average edged up 2.88 points, or 0.02%, to 11,642.65, paced by a 4% gain from General Motors (GM). The broader Standard & Poor's 500 index slipped 2.29 points, or 0.17%, to 1,322.85. The tech-heavy Nasdaq composite fell 17.51 points, or 0.75%, to 2,320.74.
The Fed said economic data will determine future action. "Some further policy firming may yet be needed to address inflation risks," the Fed said in a statement, adding the word "yet" to the language from its Mar. 28 statement. This word gives the Fed more flexibility, says Action Economics.
The statement leaves the door open to another 25-basis-point hike at the June meeting, some analysts say. "We think the economic and inflation data will push the Fed to make that rate move in June," says John Ryding, chief U.S. economist at Bear Stearns. "On the tone of the statement, the discussion of policy was more linked to the Fed's assessment of the economic outlook than was previously the case."
Other analysts say the statement was more hawkish than expected. "It appears the Fed is leaning toward another rate hike at the June meeting, but we believe that a slowdown in the economy this quarter will still allow the Fed to pause when it meets again on June 28-29," says Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank. "The economic data take on paramount significance, which is why tomorrow's retail sales report is so important."
On Thursday, April retail sales are expected to increase 0.9%, says Action Economics. Also on the economic docket, initial jobless claims are seen easing 2,000 to 320,000 for the week ended May 6.
Before the Fed's decision, earnings news was front and center Wednesday. Tech bellwether Cisco (CSCO) was lower after the networking equipment maker reported a slight drop in fiscal third-quarter profit due to expenses related to its acquisition of Scientific-Atlanta.
On the positive side, Disney (DIS) was higher after posting a 12% rise in second-quarter profit, boosted by strength in its ABC broadcasting unit.
Among automakers, Toyota (TM) was modestly lower after the Japanese company said its fourth-quarter profit rose 39%. Competitor DaimlerChrysler (DCX) rose on an upgrade from hold to buy at Deutsche Bank.
China's biggest Internet search provider, Baidu.com (BIDU), was up sharply on better than expected first-quarter results.
Retail chain Federated Department Stores (FD) was lower after posting better-than-expected first-quarter earnings on flat same-store sales.
Among other companies in focus, H&R Block (HRB) was lower after guiding its 2006 profit downward. The tax preparer said total clients served in U.S. retail offices for the 2006 tax season fell 2%.
Companies set to report earnings Thursday include cable giant Viacom (VIA) along with retailers JCPenney (JCP) and Kohl's (KSS).
In the energy markets Wednesday, June West Texas Intermediate crude oil futures rose $1.44 at $72.13 a barrel, despite weekly inventory data showing an unexpected increase of 300,000 barrels. Meanwhile, Iran's President Mahmoud Ahmadinejad rejected Western concerns over its nuclear aspirations as "a big lie."
European markets finished lower. In London, the Financial Times-Stock Exchange 100 index fell 22.2 points, or 0.36%, to 6,083.4. Germany's DAX index lost 22.34 points, or 0.36%, to 6,118.38. In Paris, the CAC 40 index declined 33.91 points, or 0.64%, to 5,278.27.
Asian markets finished mixed. Japan's Nikkei 225 index slid 238.98 points, or 1.39%, to 16,951.93. In Hong Kong, the Hang Seng index fell 53.4 points, or 0.31%, to 17,080.59. Korea's Kospi index edged higher 0.65 points, or 0.04%, to 1,451.09.
Treasury yields recovered from session lows after the Fed statement. Prices for 10-year Treasury notes edged higher to 95-08/32 with a yield of 5.12%, while 30-year bonds rose to 89-21/32 for a yield of 5.19%.