Stocks closed lower Wednesday after a rally that followed the Federal Reserve's latest interest rate policy update faded in the final hour of trading.
The S&P 500 fell 0.46% after having been up 0.6% after the Fed's afternoon announcement. The central bank signaled it will keep interest rates near zero through 2023 and issued a slightly less dire outlook for economic growth and unemployment this year.
The Fed's decision to leave rates unchanged had been widely expected by Wall Street and continues the central bank's policy of unprecedented support for financial markets since the pandemic knocked the economy into a recession.
"The Fed confirmed what we all thought: Rates at 0% are here to stay, probably for years," said Ryan Detrick, chief market strategist for LPL Financial.
The S&P 500 lost 15.71 points, to 3,385.49. The Dow Jones Industrial average rose 36.78 points, or 0.1%, to 28,032.38. It had earlier been up by 369 points. The Nasdaq composite lost 139.85 points, or 1.25%, to 11,050.47.
Smaller stocks rose more than the rest of the market, and the Russell 2000 index of small-cap companies gained 14.17 points, or 0.9%, to 1,552.33.
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The market's pullback snapped a three-day winning streak for the S&P 500, which is down 3.3% this month after five-straight monthly gains.
One of the primary reasons Wall Street has roared back to record heights this year despite the still-raging pandemic is the immense aid from the Fed. The central bank has cut short-term rates to nearly zero and is buying all kinds of bonds to support markets. Last month, Fed Chairman Jerome Powell outlined a new strategy of providing support even if inflation rises above its target level.
"Don't fear the Federal Reserve, and don't fear them making a policy mistake that hurts economic expansion any time in the next three years," said Mike Zigmont, director of trading and research at Harvest Volatility Management.
"The Fed's statement today is an affirmation to market participants that a risk-on strategy will continue to be supported by the Fed," said Lindsey Bell, chief investment strategist at Ally Invest.
Powell said Wednesday that the economy is recovering more quickly than the Fed had expected. The central bank updated its forecast for gross domestic product to a decline of 3.7% this year, compared with a June forecast of a 6.5% drop. The Fed projected an unemployment rate at the end of the year of 7.6%, instead of the 9.3% it projected in June.
The economy has improved fitfully since the worst of the lockdowns in the spring. Investors say the economy and markets still need all the support they can get from the Fed and Congress.
Meanwhile, a report on Wednesday showed that U.S. retail sales strengthened less than economists expected last month.
Technology stocks led the slide Wednesday, outweighing gains in financial, industrial and energy companies. Gains by big technology stocks have helped drive the market's stunning rebound this year, most recently carrying the S&P 500 to a record high on Sept. 2.
FedEx rose 5.8% after reporting stronger profit growth for the latest quarter than analysts expected. The boom in online shopping caused by the coronavirus pandemic has helped lift its revenue.
Treasury yields dipped after the retail sales report but inched higher after the Fed statement. The yield on the 10-year Treasury rose to 0.69% from 0.68% late Tuesday.
Information for this article was contributed by Elaine Kurtenbach of The Associated Press.