Stocks Retreat as Fed Signals Possible Higher Interest Rates

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -1.21%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.98%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.99%.  June E-mini S&P futures (ESM26) fell -1.19%, and June E-mini Nasdaq futures (NQM26) fell -0.95%. 

Stock indexes gave up early gains on Wednesday and settled sharply lower, with the Dow Jones Industrials falling from a new all-time high, after the Fed signaled the possibility of higher interest rates later this year.  As expected, the FOMC kept interest rates unchanged following Wednesday’s meeting, but its dot-plot of interest rate projections indicates at least one more 25 bp rate hike this year.  The weakness in the Magnificent Seven technology stocks and a slump in software stocks weighed on the overall market. 

Stocks initially moved higher on Wednesday amid strength in chipmakers. Stocks also garnered support on better-than-expected US economic reports on US May retail sales, a sign of resilient consumer demand, and May pending home sales. 

Stocks also have carryover support from Monday after the US and Iran agreed to end their war and reopen the Strait of Hormuz, knocking crude oil prices down to a 3.5-month low and stoking risk-on sentiment in asset markets.

US MBA mortgage applications fell -3.8% in the week ended June 12, with the purchase mortgage sub-index down -3.4% and the refinancing mortgage sub-index down -4.5%.  The average 30-year fixed rate mortgage was unchanged from last week at 6.60%.

US May retail sales rose +0.9% m/m, stronger than expectations of +0.6% m/m.  Also, May retail sales ex-autos rose +0.8% m/m, stronger than expectations of +0.6% m/m.

US May pending home sales rose +3.8% m/m, stronger than expectations of +0.9% m/m and the biggest increase in 20 months.

The FOMC, as expected, voted unanimously to keep the fed funds rate target unchanged at 3.50%-3.75% and to remove language on potential additional interest rate adjustments, declaring "the committee will deliver price stability." 

The FOMC's dot plot of interest rate projections showed the committee raised its fed funds rate projection to 3.750% at the end of 2026, up from a prior estimate of 3.375%, implying at least one more 25 bp rate hike this year.  Nine of 18 FOMC participants penciled in at least one more rate hike this year, with six anticipating at least two.

The Fed cut its US 2026 GDP projection to 2.2% from a March projection of 2.4% and boosted its 2026 core PCE projection to 3.3% from 2.7%.

Fed Chair Keven Warsh said he's appointing task forces to examine central bank functions, including communications, the balance sheet, reliance on existing data sources, productivity and jobs, and the Fed's inflation framework.

WTI crude oil prices (CLN26) recovered from a 3.5-month low today and rose nearly 1% as prices consolidated following this week’s plunge.  The eventual resumption of vessel traffic through the Strait of Hormuz could lead to the release of more than 100 laden ships carrying oil from Middle Eastern countries other than Iran that are stuck in the Persian Gulf, effectively releasing stockpiles into the market.  Goldman Sachs on Tuesday cut its price forecast on Brent crude to $80 a barrel in Q4 of this year, down from $90 a barrel, and said it expects Persian Gulf crude exports to return to pre-war levels by the end of July, one month earlier than previously expected. 

The markets are discounting a 36% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled higher on Wednesday.  The Euro Stoxx 50 rallied to a new record high and closed up +0.68%.  China's Shanghai Composite rose to a 2.5-week high and closed up +0.40%.  Japan’s Nikkei-225 Stock Average climbed to a new all-time high and closed up +0.72%.

Interest Rates

September 10-year T-notes (ZNU6) on Wednesday closed down -12 ticks, and the 10-year T-note yield rose +3.6 bp to 4.475%.  Sep T-notes moved lower on Wednesday after US economic reports showed May retail sales and May pending home sales rose more than expected, a hawkish factor for Fed policy.  T-notes extended their losses on Wednesday afternoon when the Fed raised its US 2026 core PCE estimate and projected higher interest rates later this year. 

European government bond yields are moving lower today.  The 10-year German bund yield fell to a 1.75-month low of 2.914% and finished down -0.3 bp to 2.927%.  The 10-year UK gilt yield fell to a 2-month low of 4.734% and finished down -3.7 bp to 4.751%.

Eurozone May core CPI was revised upward to 2.6% y/y from the previously reported 2.5% y/y, the strongest pace of increase in 13 months.

ECB Governing Council member Gediminas Simkus said that the "pass-through of the increase in energy and other raw material prices to the market has already occurred," and "at least one more rate increase is certainly more likely than not."

UK May CPI rose 2.8% y/y, weaker than expectations of 3.0% y/y. May core CPI rose 2.6% y/y, weaker than expectations of 2.7% y/y.

Swaps are discounting a 16% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

US Stock Movers

The Magnificent Seven technology stocks moved lower on Wednesday, weighing on the broader market.  Meta Platforms (META) is down more than -3% to lead losers in the Nasdaq 100, and Alphabet (GOOGL) and Amazon.com (AMZN) are down more than-2%.  Also, Microsoft (MSFT) and Tesla (TSLA) are down more than -1%.  In addition, Apple (AAPL) is down -0.64% and Nvidia (NVDA) is down -0.50%.

Software stocks retreated on Wednesday, a negative factor for the overall market.  Adobe Systems (ADBE) and ServiceNow (NOW) close down more than -5%, and Salesforce (CRM)

Closed down more than -4% to lead losers in the Dow Jones industrials.  Also, Atlassian Corp (TEAM), Autodesk (ADSK), and Intuit (INTU) closed down more than -4%, and Workday (WDAY) closed down more than -3%.  In addition, Oracle (ORCL) closed down more than -2%, and Datadog (DDOG) and Palantir Technologies (PLTR) closed down more than -1%.

Telecommunication stocks were under pressure on Wednesday, a negative factor for the overall market. Charter Communications (CHTR) closed down more than -6%, and Comcast Corp (CMCSA) closed down more than -3%.  Also, AT&T (T) closed down more than -2%, and T-Mobile US (TMUS) and Verizon Communications (VZ) closed down more than -1%. 

Trucking stocks slid for a third day on Wednesday after Citigroup on Monday warned that the recent rally in trucking and logistics stocks had been overdone.  RXO Inc (RXO) and ArcBest (ARCB) closed down more than -8%, and Old Dominion Freight Line (ODFL), XPO Inc (XPO), and Knight-Swift Transportation Holdings (KNX) closed down more than -5%.  Also, CH Robinson Worldwide (CHRW) and FedEx Freight Holdings (FDXF) closed down more than -1%.

Chipmakers rebounded on Wednesday, recovering some of Tuesday’s sharp losses.  ARM Holdings Plc (ARM) closed up more than +5% to lead gainers in the Nasdaq 100, and Applied Materials (AMAT) and Broadcom (AVGO) closed up more than +4%.  Also, ASML Holding NV (ASML), Marvell Technology (MRVL), and (INTC) closed up more than +3%, and Micron Technology (MU) closed up more than +2%.  In addition, Advanced Micro Devices (AMD) and Lam Research (LRCX) closed up more than +1%.

Ormat Technologies (ORA) closed down more than -5% after Bernstein initiated coverage on the stock with a recommendation of underperform and a price target of $115.

Rexford Industrial Realty (REXR) closed down more than -5% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $25.

Leidos Holdings (LDOS) closed down more than -4% after Bank of America Global Research downgraded the stock to neutral from buy.   

CME Group (CME) closed down more than -3% after announcing that CEO Terry Duffy is stepping down and CFO Lynne Fitzpatrick will replace him on March 1, 2027. 

ResMed (RMD) closed down more than -3% after Morgan Stanley downgraded the stock to equal weight from overweight.   

UniQure NV (QURE) closed up more than +79% after saying the FDA allowed 3-year data from its Phase I/II study of AMT-130 for Huntington’s disease to be acceptable as the primary basis for an application for accelerated approval.

Wabash National Corp (WNC) closed up more than +16% after D.A. Davidson upgraded the stock to buy from neutral with a price target of $20. 

La-Z-Boy (LZB) closed up more than +15% after reporting Q4 adjusted EPS of $1.26, stronger than the consensus of 83 cents. 

Aehr Test Systems (AEHR) closed up more than +7% after saying it received a follow-on production order for a fully automated FOX-XP wafer-level burn-in (WLBI) system.

Credicorp Ltd (BAP) closed up more than +6% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $480.

Figma Inc (FIG) closed up more than +4% after Citigroup initiated coverage on the stock with a recommendation of buy and a price target of $36.

Earnings Reports(6/18/2026)

Accenture PLC (ACN) and Kroger Co/The (KR).