By Saumya Vaishampayan
U.S. stocks and bonds dipped after the Federal Reserve offered a
brighter assessment of the U.S. labor market than many investors
had expected, but also repeated its pledge to keep interest rates
low for the foreseeable future.
As had been expected, the Fed ended the bond-buying program it
has been using to ease monetary policy. Many investors were
surprised to see a relatively optimistic assessment of the outlook
for the U.S. given the recent focus on economic woes in Europe and
the threat to global growth.
While the news out of the Fed provided some surprises for
investors, stocks ended the day slightly lower after short-lived
swings when the Fed announced its monetary-policy decision at
midafternoon.
The Dow Jones Industrial Average fell 31.44 points, or 0.2%, to
16974.31. The S&P 500 lost 2.75 points, or 0.1%, to 1982.30 and
the Nasdaq Composite declined 15.07 points, or 0.3%, to
4549.23.
"We've had a pretty good bounce back over the last couple of
weeks and this announcement did nothing to really shake anyone or
put any fear in anyone just yet," said Viren Chandrasoma, managing
director of equity trading at Credit Suisse.
The yield on the 10-year Treasury note rose to 2.325%, the
highest level since Oct. 9. Yields rise as prices fall.
Stocks have whipsawed since mid-September, when the Dow and the
S&P closed at all-time highs. Stocks subsequently tumbled,
hitting a low about a month later, amid fears of slowing global
growth. In the past two weeks, stocks have broadly recovered as
investors focused on U.S. corporate earnings. Stock-market gains on
Tuesday carried the S&P 500 and the Nasdaq Composite into
positive territory for October, but the indexes still remain below
levels seen in September. The Dow is down 0.4% for October and off
1.8% from its Sept. 19 record, as of Wednesday's close.
"However you look at this, the Fed is being less stimulative
than they have been," said Jack McIntyre, portfolio manager at
Brandywine Global, which manages about $60 billion. "This is the
Fed sending the signal to equities that we've been giving you
[quantitative easing] for a long time. If you're going to rally,
it's got to be on more normal fundamental influences."
The dollar strengthened against the euro and the yen as
investors grew more confident that the Federal Reserve will be
among the first major central banks to raise short-term interest
rates since the financial crisis. The greenback rose to Yen108.95,
from Yen108.12 ahead of the meeting's conclusion. The euro tumbled
against the dollar, to $1.2635 from $1.2727 beforehand.
Recent market volatility is likely to continue as Fed officials
debate when to raise short-term interest rates, which have been
near zero since December 2008, said Steven Wieting, global chief
investment strategist at Citi Private Bank.
"Monetary policy just can't be as certain as it's been," he
said. "It just can't be as clear and supportive for easy financial
conditions across asset classes."
Short-dated Treasury bonds led the selling following the Fed
statement, with their yields rising at a faster pace compared with
those on long-dated bonds. The two-year yield and the five-year
yield both rose to their highest closing levels since Oct. 7.
Yields on short-dated Treasurys are more sensitive to the Fed's
official interest-rate policy outlook. Yields on long-dated bonds
are more influenced by the outlook for inflation, which chips away
at investors' fixed returns over time.
In commodity markets, crude-oil futures rose 1% to $82.20 a
barrel. Crude-oil prices had tumbled this month, hitting a 2014
settlement low of $80.52 a barrel on Oct. 22, weighing on stocks of
energy companies.
Gold futures fell 0.4% to $1224.30 an ounce.
In Europe, the Stoxx Europe 600 gained 0.2%.
In corporate news, Facebook Inc. shares fell 6.1%, weighing on
the S&P 500 and the Nasdaq. The social network's costs rose 41%
in the third quarter and finance chief David Wehner said he expects
Facebook to incur higher expenses than normal in the coming
quarters because of big investments.
Health insurer WellPoint Inc. raised its outlook after reporting
better-than-expected quarterly earnings. Shares rose 1.8%
Hershey Co. reported a 5.8% increase in sales in the latest
quarter. But the company lowered its guidance for the year because
of lower-than-expected international sales amid macroeconomic
challenges. Shares fell 1.5%.
Goodyear Tire & Rubber Co. posted higher-than-expected
profit in the third quarter. Shares rose 5.4%.
Shares of Shell Midstream Partners LP surged 46% in the
company's trading debut. Shell Midstream owns an interest in
pipelines controlled by Royal Dutch Shell PLC that carry crude oil
and refined products.
Daniel Strumpf and Min Zeng contributed to this article.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com