The major averages finished mostly lower on Wednesday after an initially positive session unraveled following the FOMC decision and Fed Chair Kevin Warsh's press conference. The S&P 500 (-0.4%) and DJIA (-1.2%) ended in negative territory, while the Nasdaq Composite finished unchanged after trading as much as 0.9% higher earlier in the session. The Russell 2000 (-0.4%) and S&P Mid Cap 400 (-0.6%) also finished lower.

Stocks had been mostly higher through early afternoon, supported by a sharp retreat in crude oil and renewed strength across technology stocks. The market showed little initial reaction when the FOMC unanimously voted to raise the target range for the fed funds rate by 25 basis points to 3.75-4.00%, marking the first rate hike since January 2023.

Selling picked up during Mr. Warsh's subsequent press conference, however, as his comments on persistent inflation reinforced expectations that today's move may be the beginning of a broader tightening cycle. Mr. Warsh said the "plain fact is that inflation is too high, and has been for too long," adding that recent inflation readings have not convinced him that underlying trends have meaningfully improved. The hawkish interpretation was also supported by the latest dot plot, which showed 16 of 18 Fed officials expecting at least one additional rate hike this year.

Treasury yields moved sharply higher in response, with the 2-year note yield jumping from 4.60% shortly before the policy announcement to settle at 4.73%, while the 10-year note yield climbed from 4.95% to 5.01%. The increase in rates took considerable steam out of the broader market, although many of the day's sector trends had already been established before the FOMC announcement.

The information technology sector (+0.1%) was one of just three S&P 500 sectors to finish at or slightly above its flat line, though it surrendered nearly all of an earlier gain. The PHLX Semiconductor Index (+0.6%) similarly finished well below its session high after providing much of the market's early leadership. Advanced Micro Devices (AMD 512.50, +8.30, +1.65%) and Intel (INTC 101.05, +3.91, +4.03%) were notable gainers, with Intel supported by a Reuters report that SK hynix Inc. (SKHY 174.87, +0.04, +0.02%) is in exploratory talks with the company over potential U.S. chip fabrication capacity at Intel's delayed Ohio project.

Strength outside semiconductors was less convincing, with Microsoft (MSFT 490.30, -6.82, -1.37%) and IBM (IBM 237.60, -10.77, -4.34%) among the DJIA's laggards.

The health care sector (flat) and utilities sector (flat) also avoided losses, while the industrials sector (-0.1%) finished as another relative outperformer. Semiconductor-linked strength across AI infrastructure plays helped offset pronounced weakness in freight names after J.B. Hunt Transport (JBHT 236.73, -36.32, -13.30%) warned that higher fuel costs and a lag in passing those costs through to customers will create a meaningful third-quarter earnings headwind. Axon (AXON 468.42, +26.34, +5.96%) also recovered some ground following yesterday's sharp retreat.

The financials sector (-1.6%) was one of the day's most pronounced laggards and weakened further as Treasury yields climbed following the Fed decision. Banking stocks bore the brunt of the selling, leaving the Invesco KBW Bank ETF down 2.9%. Crypto-related names were another source of weakness after the Clarity Act failed to advance in the Senate yesterday, with Coinbase Global (COIN 164.51, -7.60, -4.42%) and Robinhood Markets (HOOD 104.42, -6.03, -5.46%) extending their recent declines.

The energy sector (-3.0%) finished at the bottom of the standings as crude oil reversed a portion of yesterday's surge. WTI crude settled $3.41 lower (-3.2%) at $102.41 per barrel after CNBC reported that the Saudi pipeline damaged in recent Houthi attacks is expected to restart operations within days.

Wednesday's session ultimately hinged on the market's interpretation of the Fed's policy outlook rather than the rate hike itself. The widely anticipated 25-basis-point increase initially generated little response, but Mr. Warsh's emphasis on persistent inflation and the prospect of additional tightening drove Treasury yields higher and erased most of the market's earlier gains during the afternoon.

U.S. Treasuries had a mixed showing on Wednesday, as the front retreated after the Fed announced a 25-basis point rate hike while the long end outperformed with the long bond near its starting level. The 2-year note yield settled up seven basis points to 4.73%, and the 10-year note yield settled up one basis point to 5.01%. 

• Russell 2000: +15.2% YTD
• Nasdaq Composite: +11.8% YTD
• S&P 500: +10.3% YTD
• S&P Mid Cap 400: +10.2% YTD
• DJIA: +7.1% YTD

Reviewing today's data:

• 09/12 MBA Mortgage Applications Index -4.1% (Prior -2.7%)
• Total retail sales increased 1.2% month-over-month in August (Briefing.com consensus: 0.9%) following an upwardly revised 0.5% decline (from -0.6%) in July. Excluding autos, retail sales surged 1.4% (Briefing.com consensus: 0.5%) following an upwardly revised 0.2% decline (from -0.3%) in July.
  • The key takeaway from the report is that it is indicative of ongoing strength in consumer spending on goods. Take gas station sales out of the equation, and retail sales were still up 1.1% month-over-month; core sales, which exclude autos, gasoline, building materials, and food services, jumped 1.4%.
• Aug Retail Sales, ex-auto 1.4% (Briefing.com consensus 0.5%; Prior -0.2%)
• Aug Import Prices 0.7% (Prior -0.3%)
• Aug Import Prices ex-oil 0.8% (Prior 0.3%)
• Aug Export Prices 0.6% (Prior -1.4%)
• Aug Export Prices ex-ag. 0.7% (Prior -1.6%)
• Jul Business Inventories 0.8% (Briefing.com consensus 0.2%; Prior 0.1%)
• Sep NAHB Housing Market Index 32 (Briefing.com consensus 34; Prior 35)
• 09/12 EIA Crude Oil Inventories -0.64M (Prior -0.39M)