Stocks tumble, Dow off 253 as oil falls below $35
Wall Street's euphoria over the Federal Reserve proved short-lived as stocks sold off sharply Thursday, led by the energy sector after oil prices fell below $35 a barrel.
The Dow Jones industrial average closed at its low for the day, down 253 points, or 1.4%, at 17,496.
The drop more than wiped out the gains from Wednesday, when the Dow gained 224 points after the Fed hiked interest rates for the first time in nearly 10 years but promised that future rate increases would come at a "gradual" pace. The widely expected Fed move provided a market-friendly message that removed much of the uncertainty that has weighed on markets for most of 2015.
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Although stocks rallied briefly at the opening bell and looked ready to build on a three-day winning streak, the gains quickly evaporated Broader market gauges also dropped, with the Standard & Poor's 500 down 1.5% and the technology-packed Nasdaq composite down 1.4%.
The major culprit was oil prices, as U.S. benchmark crude dropped more than 2% to $34.69 a barrel, the lowest since February 2009, and dragged the energy sector down with it.
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With the Fed now out of the way until next year — and the impact of the rate increase still largely unknown in other corners of global markets — markets will go back to focusing on business fundamentals like holiday retail sales, job growth, oil prices and other data points that provide insight into the profit potential of U.S. companies.
Wednesday, Wall Street reacted positively to the Fed's message that the first rate hike since 2006 is a sign of economic strength and that weaning the nation off of cheap money won't derail the economic recovery. The upbeat market reaction to the Fed's decision isn't too surprising, given that the rate hike -- and first step in bringing rates up to more normal levels -- is arguably one of the most publicized and clearly telegraphed in market history. The Fed upped its target for short-term rates off of 0% to a range of 0.25% to 0.50%.
"The markets are finally through the first hike and stocks are responding with a great relief rally," David Lubin, a member of Citigroup's economy and strategy team, said in a report. But he added that risks in coming quarters are possible, citing continued weakness in commodities and more pressure from the strength of the U.S. dollar.
But not all the Fed-related questions are over, warns Citigroup economist William Lee.
"Defining 'gradual' and divining how the Fed will implement a gradual rate increase will become the new parlor game for financial markets," Lee wrote in a research report.
And there are still skeptics on Wall Street that warn that there will be trouble in markets despite the initial positive reaction to the Fed rate hike and so-called "dovish" message.
"Investors should prepare for a very difficult period in financial markets, but should avoid knee jerk reactions," warns Benjamin Alderson, senior area manager of deVere USA, an independent financial advisory firm. "The Fed is removing a key support for all financial markets by raising interest rates, despite worrying evidence of slower U.S. economic growth on the horizon."
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European shares were higher, as were Asian stocks. In Europe the broad Stoxx Europe 600 index was up 1.2%, while the German DAX gained 2.6% and the CAC 40 in Paris was up 1.3%.
In Asia, Japan's Nikkei 225 closed up 1.6%, with shares in Hong Kong and mainland China also rising 0.8% and 1.8%, respectively.
Adam Shell on Twitter: @adamshell.