U.S. stocks closed narrowly mixed on Wednesday, failing to hold record levels, as the Fed minutes mostly confirmed market expectations for a rate hike in the second half of the year. (Tweet This)
"I guess the real factor here is the majority of Fed members don't see any reason to raise rates in June," said Peter Cardillo, chief market economist at Rockwell Global Capital. He called the minutes "neutral."
The major indices rose modestly before pulling back, with the S&P 500 setting a new intraday high of 2,134.72 and the Nasdaq briefly trading above its record close of 5,092.09.
Stocks spent most of the day fluctuating around the flatline. The Dow transports closed down 1.96 percent, hitting a 7-month low, as airline stocks declined. Southwest closed down 9 percent as one of the leading laggards after the company said it expects a decline in passenger revenue per available seat mile for the quarter.
The Fed minutes showed policymakers mostly brushed aside the wobbly start the U.S. economy has had in 2015, attributing the lack of growth to "transitory" factors that will abate soon. Only a few policymakers supported a June rate hike.
"I think the market read this as no rate hike for a while. I don't think the market is correct," said Brad McMillan, chief investment officer at Commonwealth Financial Network. He noted that stock gains were muted and the minutes' use of "meeting-by-meeting" was hawkish to him and could mean a September rate hike.
Treasury yields and the U.S. dollar were little changed from morning levels after the release of the Fed minutes.
"The obsession with this is a little less relevant because the bond market is tightening right in front of everyone's eyes," said Peter Boockvar, chief market analyst at The Lindsey Group.
Investors are also looking ahead to a Friday speech from Fed chief Janet Yellen for possible new clues on when the central bank may start raising interest rates.
Art Hogan, chief market strategist at Wunderlich Securities, said the speech would probably be "more provocative" than the minutes since Yellen's remarks will account for economic reports since the April Fed meeting.
Yellen is scheduled to speak Friday at the Greater Providence Chamber of Commerce Economic Outlook Luncheon at 1 p.m. She is not expected to take questions.
The Federal Reserve Open Market Committee was scheduled to release the minutes from its April meeting at 2 p.m. The statement from that month removed all calendar references to the timing of a short-term interest rate hike.
Chicago Fed President Charles Evans said in Munich on Wednesday that a rate hike is not likely to be appropriate until early 2016, Reuters reported.
The Dow Jones industrial average closed at a record for the second day in a row on Tuesday, ending below and intraday high of 18,351.36 set earlier that session. The S&P ended mildly lower after closing at a record on Monday.
U.S. Treasury yields fell with the 10-year near 2.26 percent, remaining within the 2.2 and 2.3 percent range.
The dollar held gains against the euro, trading at $1.1104.
Oil prices pared gains after government data showed weekly oil inventories fell more than expected but not as much as a Tuesday industry report indicated.
"Stability in these large macros and housing improving may be the driver, but the real significance is the financials (taking over market leadership on Tuesday)," Hogan said. He noted that investors are rotating into the banking sector partly on the idea that "over the long term interest rates are going to be higher, not lower."
Financials led index declines on Wednesday but remains the second-best performing sector in the S&P 500 month-to-date.
The financial sector was the greatest advancer in the S&P on Tuesday, with the regional banking index KRE closing up 1.09 percent. The index fell 0.60 percent on Wednesday.
Authorities on Wednesday fined JPMorgan Chase, Citigroup, Barclay's, RBS and UBS a total of more than $5.5 billion for , the U.S. Department of Justice said on Wednesday. The U.S. Federal Reserve fined all five banks and also Bank of America.
Charles Schwab upgraded financials on May 7 in "anticipation of the fine phase winding down," said Schawb's managing director of trading and derivatives Randy Frederick.
The S&P 500 closed down 1.98 points, or 0.09 percent, at 2,125.85, with telecommunications leading five sectors higher and financials leading laggards.
The Nasdaq closed up 1.71 points, or 0.03 percent, at 5,071.74.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
Advancers were a step ahead of decliners on the New York Stock Exchange, with an exchange volume of 673 million and a composite volume of nearly 3 billion in the close.
Crude oil futures for July delivery settled up 99 cents, or 1.71 percent, at $58.98 a barrel on the New York Mercantile Exchange. Gold futures ended up $2.00 at $1,208.70 an ounce.
Major earnings before market open included Lowe's, Hormel Foods, Staples, Target. After the bell, L Brands, Salesforce.com and American Eagle Outfitters are due to report.
Lowe's closed down 4.6 percent after the home improvement retailer missed estimates by four cents with quarterly profit of 70 cents per share. Revenue missed forecasts, and same-store sales rose less than expected. JPMorgan Chase analyst Chris Horvers told CNBC that rival Home Depot has an advantage over Lowe's in both execution and store location.
Hormel Foods closed up 4.2 percent after the firm reported quarterly profit of 67 cents per share, five cents above estimates, although revenue was shy of forecasts. Hormel did say that its Jennie-O turkey business could be "significantly challenged" due to the impact of the bird flu outbreak in the U.S. However, the company did reaffirm its full-year earnings forecast
Staples closed down about 1.6 percent after matching estimates with adjusted quarterly profit of 17 cents per share, but revenue fell short and sales fell more than anticipated. Staples is in the process of merging with rival Office Depot, just two years after acquiring OfficeMax.
Target gained 0.3 percent after the retailer reported earnings of $1.10 a share, beating estimates of $1.03 a share, and raised the low end of its forecast range for the year. Same-store sales rose 2.3 percent, matching expectations from Consensus Metrix, Reuters said.
Yahoo closed up 4.4 percent. The stock came under pressure late Tuesday on concern that possible U.S. tax law changes could affect the company's planned spinoff of its Alibaba stake. However, Yahoo issued a statement saying it understands that the latest IRS statement on the matter is not specific to the planned move.
Time Warner Cable jumped 5.4 percent after French telecom company Altice announced a deal to buy Suddenlink Communications of the U.S., and reportedly held talks to buy TWC, according to Reuters.
European equities managed to close higher on Wednesday, but struggled to hold momentum from the previous day's strong gains as concerns about Greece weighed.
The Greek government's parliamentary speaker said on Wednesday that Athens will not make the June 5 payment unless it has reached a deal with its creditors, Reuters reported.
The European Central Bank raised its emergency funding cap for Greek banks by 200 million euros to 80.2 billion euros ($89.1 billion), Dow Jones reported.
—Reuters and CNBC's Patti Domm, Jeff Cox and Peter Schacknow contributed to this report.
On tap this week:
Earnings: L Brands, NetApp, Salesforce.com, Synopsys, Williams-Sonoma, American Eagle Outfitters, Yoku Tudou
Earnings: Hewlett-Packard, Intuit, Williams-Sonoma, Gap, Trina Solar, Toro, The Buckle, Ross Stores, Aeropostale, Aruba Networks, Brocade
08:30 a.m.: Initial claims
10:00 a.m.: Existing home sales
01:30 p.m. Fed Vice Chairman Stanley Fischer on economic outlook at ECB forum
07:00 p.m.: San Francisco Fed President John Williams on impact of form
Earnings: Campbell Soup, Deere, Foot Locker, Ann, Mentor Graphics, Krispy Kreme
08:30 a.m.: CPI
09:45 a.m. Manufacturing PMI
01:00 p.m. Fed Chair Janet Yellen at the Greater Providence Chamber of Commerce on economic outlook
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