The stock market, following back-to-back undistinguished sessions to start the week, pressed modestly higher as the Wednesday session began. This somewhat positive action came just hours ahead of the Federal Reserve's FOMC decision, which many at the time believed would involve another interest rate increase. That would be the third interest rate hike this year. Expectations for this quarter-of-a-percentage point rise were almost universal. More important than what the Fed did--and it did vote to raise borrowing costs by the projected quarter of a point--was what it said about future monetary action (see below).

So, stocks rallied, with the Dow Jones Industrial Average, which had fallen on Monday and Tuesday, gaining modestly at the open, with that composite led by a several-point gain in the shares of old-line tech mainstay IBM (IBM – Free IBM Stock Report), adding some 50 points in the early going. IBM stock benefited from a bullish brokerage house report. Conversely, shares of DowDuPont (DWDP – Free DowDuPont Stock Report) fell back in early trading. The advance in the Dow, however, started to stall as the first hour concluded, and investors nervously awaited the Fed's action and commentary.

Elsewhere, data on new home sales were issued. And that report, following on the heels of softer figures released last week on sales of existing homes, showed that this category had strengthened in August, with sales climbing from July's 608,000 homes sold on an annual basis to 629,000 properties transacted last month. As to inventories, the supply seems adequate at 6.1 months homes at the current sales rate. This report, however, had little overt impact on the market, as stocks remained in the plus column as the morning progressed and the Fed’s decision loomed.

The stock market then strengthened anew into the noon hour, with the advance led this time by both the Dow and the NASDAQ. However, this was at the time largely a big-cap rally, with the S&P 400 and the Russell 2000 staying slightly in the loss column. The market then would continue on its somewhat merry way into the first part of the afternoon, as traders awaited the 2PM (EDT) Fed announcement and monetary statement. The 2PM announcement, meanwhile was as expected, with the Fed voting another 25 basis-point hike in borrowing costs.

The initial reaction was a collective yawn, although the equity market did strengthen modestly for time, as the rate hike was clearly expected, with the Dow climbing by a session-best 115 points. But the index could not sustain that strength, and as the afternoon progressed, there was some intermittent profit taking, although the Dow and the NASDAQ remained in the profit column until very late in the session. Then, some aggressive selling finally took hold. It seems that the removal of the word accommodative from the Fed took the steam out of the upturn. The news conference by the Fed Chair after the issuance did not help either.

The selling, meantime, would take the Dow down to a closing loss of 107 points, while the NASDAQ ended matters with a deficit of 17 points. Steeper losses were sustained by the smaller-cap indexes, while the Big Board saw more declining than advancing stocks. Also, oil prices eased back, as did yields on the 10-year Treasury issue, which saw its return drop to 3.06%. Looking out now at a new day and following the late drop in New York, we see that shares in Asia were lower in the overnight hours, while in Europe, the bourses are tracking downward, as well. Finally, Treasury yields are down slightly again and U.S. equity futures are gaining modestly at this hour.

– Harvey S. Katz, CFA

 At the time of this article’s writing, the author did not have positions in any of the companies mentioned.