June 14 (Reuters) – Wall Street stocks fell on Wednesday after the Federal Reserve kept U.S. interest rates unchanged but signaled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year.
The S&P 500 (.SPX) traded lower, reversing early gains after the U.S. central bank reacted to a stronger-than-expected economy and a slower decline in inflation.
The new projections added a hawkish tilt to Wednesday’s interest rate decision, showing policymakers at the median see the benchmark overnight interest rate rising from the current 5.00%-5.25% range to a 5.50%-5.75% range by the end of the year.
“The market has sold off because investors are concerned that there will be possibly at least two more rate hikes between now and the end of the year, with no rate cuts,” said Sam Stovall, Chief Investment Strategist at CFRA Research.
Earlier on Wednesday, a bigger-than-expected drop in U.S. producer prices in May due to a decline in the costs of energy goods and food signaled that inflation was cooling. Data a day earlier showed consumer prices moderated last month.
Traders now see a 70% chance the central bank will raise interest rates in July, up from 60% earlier on Wednesday, according to the CME Fedwatch tool.
The Dow Jones Industrial Average (.DJI) was down 1.19% at 33,806.68 points, while the S&P 500 (.SPX) lost 0.61% to 4,342.25.
The Nasdaq Composite (.IXIC) dropped 0.67% to 13,482.57.
Also weighing on the Dow, UnitedHealth Group (UNH.N) tumbled 7.6% after the health insurer warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures they had delayed during the pandemic.
The S&P 500 health sector index (.SPXHC) fell 1.3%, while the S&P 500 managed healthcare index (.SPLRCHMO) tumbled 8.1% to its lowest since February 2022.
Shares of hospital operators Universal Health Services (UHS.N) and HCA Healthcare (HCA.N), however, jumped 4.3% and 2.1%, respectively.
U.S. stocks have rallied in recent weeks, lifting the benchmark S&P 500 and Nasdaq to 14-month highs following signs of economic resilience, a better-than-expected earnings season and bets that interest rates are near their peak.
The S&P 500 is up 13% so far in 2023, while the Nasdaq has climbed 29%.
While megacap technology stocks have driven much of the gains this year, economically sensitive small-cap shares as well as material and banking sectors have joined the rally recently.
Declining issues outnumbered advancing ones on the NYSE by a 1.68-to-1 ratio; on Nasdaq, a 1.81-to-1 ratio favored decliners.
The S&P 500 posted 40 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 84 new highs and 52 new lows.
Reporting by Shristi Achar A and Sruthi Shankar in Bengaluru, and by Noel Randewich in Oakland, Calif.
Editing by Vinay Dwivedi and David Gregorio
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