NEW YORK — U.S. stocks are taking small losses Wednesday after the Federal Reserve raised interest rates and said it expects to raise rates two more times by the end of the year. Banks are making the biggest gains as they stand to make more money on lending. Bond yields are rising and big-dividend stocks like real estate investment trusts are falling.
A federal court ruled that AT&T’s $85 billion purchase of Time Warner can proceed, and that’s sending ripples through the market as investors bet that hundreds of billions’ worth of deals in the media, telecommunications and health care industries stand a better chance of getting approved.
KEEPING SCORE: The S&P 500 index fell 7 points, or 0.3 per cent, to 2,779 as of 2:30 p.m. Eastern time. On Tuesday the benchmark index closed at its highest level since late January, when investors began worrying about a sharp pickup in inflation. Those concerns have since eased. The Dow Jones industrial average lost 61 points, or 0.2 per cent, to 25,259.
The Nasdaq composite gave up an early gain and fell 7 points, or 0.1 per cent, to 7,695. The Russell 2000 index of smaller-company stocks lost 7 points, or 0.4 per cent, to 1,675. Both of those indexes finished at record highs Tuesday.
FED GOING FOR FOUR: Policymakers at the Federal Reserve plan to raise interest rates four times this year, as they expect inflation to increase at a faster pace and slightly exceed their target of 2 per cent. Their projections show unemployment falling to a 50-year low later this year. The increase in rates Wednesday was the second this year.
The decision sent stocks lower, as many investors hoped the Fed would only raise rates three times this year. But the Fed’s view didn’t come as a shock after months of signs that economic growth and inflation are picking up.
Bond prices slumped. The yield on the 10-year Treasury note rose to 3 per cent after it traded at 2.95 per cent just before the Fed’s decision was announced.
The dollar strengthened. It rose to 110.77 yen from 110.33 yen. The euro fell to $1.1743 from $1.1750.
CABLE CONNECTION: Late Tuesday a judge approved AT&T’s $85 billion purchase of Time Warner and rejected the government’s argument that the deal would stifle competition and lead to higher cable bills. The purchase will give the wireless and cable giant control of CNN, HBO and the Warner Bros. movie studio. Time Warner climbed 2.5 per cent to $98.61 while AT&T lost 5.6 per cent to $32.44.
Media companies rallied. Netflix gained 3.5 per cent to $376.51 and cable channel operator Discovery rose 2.5 per cent to $24.63. CBS gained 3.1 per cent to $54.02 and Dish Network picked up 1.1 per cent to $32.74.
WHAT’S NEXT?: Investors are waiting for Comcast to officially announce an all-cash offer for Twenty-First Century Fox’s entertainment businesses, and Fox surged 6.6 per cent to $43.22 while Comcast dipped 0.3 per cent to $32.28. Comcast has said it’s preparing an offer but was waiting for the outcome of the AT&T case. Fox has agreed to sell those businesses to Disney for $52.4 billion in stock, setting up the possibility that Disney will have to raise its offer. However Disney added 2 per cent to $106.39.
Investors felt that CVS’s effort to buy health insurer Aetna is more likely to go through, and they felt similarly about Cigna’s offer for pharmacy benefits manager Express Scripts. Making smaller gains were T-Mobile USA and Sprint. Investors have been skeptical the government would allow the third- and fourth-largest wireless carriers to combine.
THE QUOTE: Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said the ruling is probably a good sign for the two health care deals because, like AT&T and Time Warner, those acquisitions won’t reduce the number of companies competing in an industry, unlike a Sprint-T-Mobile merger. Still, he said investors might be drawing overly broad conclusions from Judge Richard Leon’s ruling.
“The judge’s decision is based on some very particular facts of the AT&T-Time Warner case,” he said, including the growing popularity of streaming services and greater competition for advertising revenue. “This isn’t a case that’s about a big sweeping legal philosophy.”
BLOCK GETS BLOCKED: H&R Block plunged 16.9 per cent to $24.61 as CEO Jeffrey Jones said the tax preparer is “too reliant on price to grow revenues.” H&R Block also forecast smaller profit margins in the current fiscal year than it reported in the 12 months that just ended.
STRUCK DOWN: Medical device maker Boston Scientific dropped 5.9 per cent to $31.84 and Stryker rose 2.8 per cent to $167.12 after Stryker said it’s not in talks with Boston Scientific about a possible acquisition. Boston Scientific jumped Tuesday after the Wall Street Journal reported that Stryker offered to buy it.
ENERGY: Benchmark U.S. crude rose 0.4 per cent to $66.63 a barrel in New York. Brent crude, used to price international oils, gained 1.1 per cent to $76.74 per barrel in London.
METALS: Gold added 0.1 per cent to $1,301.30 an ounce. Silver gained 0.6 per cent to $16.99 an ounce. Copper inched up 0.1 per cent to $3.25 a pound.
OVERSEAS: Germany’s DAX rose 0.4 per cent. France’s CAC 40 and the FTSE 100 in Britain took tiny losses.
The Nikkei 225 in Japan rose 0.4 per cent and South Korea’s Kospi fell less than 0.1 per cent. Hong Kong’s Hang Seng dropped 1.2 per cent.