Nasdaq ends up 0.5%, Dow, S&P 500 finish flat

Stocks recouped some of their losses and briefly turned higher after falling sharply after the minutes from the latest Federal Reserve meeting showed most policymakers favor an interest rate hike in June if economic data improves, a message that caught complacent -- and incorrectly positioned investors -- off guard.

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The Dow Jones industrial average, which went from up 80 points to down about 100 points after the Fed minutes were released, turned back into the black about an hour after the Fed news broke. But at the 4 p.m. ET close, however, the blue chips ended basically flat, off a mere 0.02%.

The broader Standard & Poor's 500 stock index, which had been down as much as 0.6%, also charted a similar path, recouping some of its losses before ending basically flat as well, gaining only fractionally. The S&P 500 has traded in and out of positive territory for the year a few times Wednesday.

The Nasdaq composite, which started the day down 9.6% off its July 2015 record high and in danger of falling into correction territory, gained 0.5%.

Rising chances of another interest rate hike next month caught Wall Street off guard, as investors were pricing in a virtual 0% chance of a June increase at the start of the week, says Anthony Valeri, investment strategist at LPL Financial.

“It is a bit of a wakeup call, as market expectations had gotten a little complacent," Valeri told USA TODAY. "The market now probably has a more realistic view about the probability of one or two hikes this year."

The biggest moves related to the Fed came in the currency market, where the U.S. dollar shot up 0.7% versus foreign currencies. Gold, which has been rallying lately but loses its luster when the Fed is super easy, fell nearly 1% to $1265 an ounce.

U.S. government bonds also sold off, with the yied on the 10-year Treasury, which moves in the opposite direction of price, shooting up to 1.88% from Tuesday's close of 1.77%.

The key passage in the Fed minutes released at 2 p.m. ET read as follows: "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June."

Portfolio positioning on Wall Street was "a little offsides" heading into the Fed minutes today, and stocks fell on the news. But it's not the end of the world for the stock market, which is likely to continue to trade in sideways fashion as investors react to incoming data in coming weeks to see if the outlook improves enough for the Fed to follow through and raise rates, Valeri adds.

"Given how the market was positioned, it is definitely a jolt but it is not earth shaking," says Valeri. "The key phrase is 'if' the economy warrants a rate hike. I still don't think a June hike is the base case but think the Fed wants to keep the market honest rather than confirm that a rate hike is truly coming in June."

Wall Street was anxiously awaiting the release of the minutes of the Fed's April 26-27 meeting for clues as to the Fed's next move. The Fed has held off on rate hikes so far in 2016, after raising rates in December for the first time in nearly a decade. Wall Street is still unsure of what higher borrowing costs might mean for the economy and stocks.

The Fed sent a strong clue that the second rate hike since 2006 might be coming sooner than expected.

"Based on the minutes, Fed officials appear to be leaning closer to a potential rate hike next month,"  Michael Sheldon, chief investment officer at Northstar Wealth Partners told USA TODAY via e-mail. "It is certainly not a sure thing but the odds appear to be growing, and are higher than market participants were previously thinking based on comments by Fed chair Janet Yellen earlier this year."

The threat of coming rate hikes "could lead to increased volatility in financial markets over the next several weeks" as investors adjust their portfolios and react to incoming data, Sheldon added.

Don't completely count out June rate hike

Fears of a Fed rate hike rose Tuesday when the April reading on inflation at the consumer level came in at a more than three year high and two Fed members said the June Fed meeting is a "live" meeting, codeword for the possibility of a rate hike.

Earlier today, home improvement retailer Lowe's (LOW) beat earnings forecasts and raised its full-year guidance. Shares were up more than 3% in early trading. But Target (TGT), despite topping profit forecasts, lowered its outlook for the current quarter, which was viewed bearishly by investors, sending shares down almost 10%. Target's dim outlook does little to offset fears of weaker spending from U.S. consumers early in 2016.

Target Q1 sales fall, Q2 forecast spooks Street

U.S.-produced crude was unchanged at $48.30 per barrel.

The market malaise has come in May, which historically has been the start of the worst six-month stretch for stocks and the fodder for the saying, "Sell in May and go away."

And that's what investors appear to be doing.

"Let's face it, folks have been selling in May," the Stock Trader's Almanac told subscribers in a note.