US close: Stocks erase most early losses after Fed's upbeat update

Wall Street had a mixed session on Wednesday as the Federal Reserve kept interest rates on hold but sounded hawkish notes about the economy and was felt likely to be looking at a June hike.

While the Dow Jones Industrial Average recovered from early losses to add eight points and close at 20,957.90, the S&P 500 and Nasdaq fell, losing three points to 2,388.13 and almost 19 points to 5,625.16, respectively. The dollar gained 0.5% on the pound to 1.2868 and almost 0.4% on the euro to 1.0886.

A major weight was tech colossus Apple, the largest stock listed on the indices, which tumbled initially but recovered most of its losses as investors mulled its better earnings and proposed $50bn buyback.

The policy announcement and statement from the Federal Reserve around two hours before the close coincided with the Dow inching into positive territory and the S&P rub out some of its mid-session losses.

After their two day meeting, the Federal Open Markets Committee kept the fed funds target range unchanged at 0.75-1.0% and did not shrink its $4trn dollar balance sheet.

A policy statement from the rate setters indicated a pretty sanguine view of the economic outlook as they brushed aside the recent soft reading of first quarter GDP, saying the slow economic growth is "likely to be transitory" and with gradual adjustments in the stance of monetary policy inflation will stabilise around 2.0% over the medium-term.

Noting that although consumption growth had slowed, the FOMC said the "fundamentals underpinning the continued growth of consumption remained solid".

Traders apparently took Wednesday's policy announcement to mean that the central bank was still firmly on course to hike rates again next month, pushing the market implied odds of a 25 basis point interest rate hike from the Fed at its 14 June meeting to more than 90% from roughly 70.7% beforehand.

Signalling it will maintain its rate normalisation strategy and showing no uncertainty over the state of the economy was very important, economists at Barclays said.

"Given the tone of the statement, we believe the bar for inaction in June is high. To derail June, the economy would need to provide proof of fundamental weakness to the FOMC."

Capital Economics said a June hike seemed likely on balance, On balance, "although that assumes employment growth rebounds in April and May".

Economic data released on Wednesday backed the policymakers reading on the economy, with the Institute for Supply Management's gauge of non-factory sector activity rising from a reading of 55.2 in March to 57.5 in April, beating forecasts for an improvement to 56.0.

Meanwhile, a labour market report from ADP published before the opening bell showed the economy created 177,000 new jobs in April, a smidgen higher than the consensus forecast of 175,000.

Meanwhile, oil prices drifted sideways after the latest inventory data from the Energy Information Administration showed US stockpiles fell less than expected last week, while gasoline inventories grew amid weak demand. West Texas Intermediate was up 0.2% to $47.55 a barrel.

In corporate news, drug giant Merck topped the Dow as its revenues and earnings held steady, with sales of its cancer immunotherapy drug soaring.

Reynolds American posted a mixed set of first quarter financials, with earnings per share of 56 cents missing the median Wall Street estimate for 57 cents but with sales of $2.95bn slightly outpacing forecasts of $2.92bn.

Shares in KFC-owner Yum Brands on the other hand were on the front foot after posting a 2% rise in quarterly like for likes.

Time Warner was also edging higher after reporting quarterly earnings per share of $1.66 in comparison to analysts' forecasts for $1.45.

Walt Disney was lower ahead of results next week, with little news on the day apart from that the House of Mouse was launching a new digital network as a way to roll out short, digital specific programmes.

General Motors reversed some of its losses from earlier in the week as it revealed plans to expand its Maven car-sharing business as a way of tapping into the growing 'gig economy'.

Thin-film solar panel maker First Solar reported first quarter sales well ahead of expectations while modestly raising guidance for 2017. With margins weaker, Credit Suisse analysts said "pricing still stinks, assets still great."

Dow Jones - Risers

Merck & Co. Inc. (MRK) $63.61 1.45%
Chevron Corp. (CVX) $106.72 1.29%
McDonald's Corp. (MCD) $142.62 0.98%
United Technologies Corp. (UTX) $120.30 0.82%
General Electric Co. (GE) $29.22 0.79%
Exxon Mobil Corp. (XOM) $82.70 0.79%
JP Morgan Chase & Co. (JPM) $87.00 0.58%
3M Co. (MMM) $197.59 0.54%
Verizon Communications Inc. (VZ) $46.15 0.52%
Goldman Sachs Group Inc. (GS) $226.28 0.52%