US Markets

Dow falls in volatile session after Fed hints at more rate hikes ahead

Key Points
  • The Dow falls 91 points after  minutes from the Fed's September meeting showed the central bank remains convinced it needs to tighten monetary policy to keep the economy steady.
  • But the Dow, along with the S&P 500 and Nasdaq, close well off its lows as investors grapple with a slew of corporate earnings releases and weakness in the housing market.
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The Dow Jones Industrial Average fell Wednesday in volatile trading after a summary of the Federal Reserve's most-recent meeting showed the central bank was leaning toward more rate hikes moving forward.

The 30-stock index dropped 91.74 points to 25,706.68 as sharp losses in IBM offset strong gains in Goldman Sachs. The and Nasdaq Composite closed just below the flatline at 2,809.21 and 7,642.70, respectively.

The major averages closed well off their session lows, however. The Dow fell as much as 319.26 points, while the S&P 500 and Nasdaq both dropped at least 1 percent at their lows of the day.

According to the minutes from the Fed's September meeting, the central bank remains convinced it needs to tighten monetary policy to keep the economy steady.

"The risk of inflation overheating currently is small, but the Fed is communicating that if inflation were to rise aggressively beyond their forecast, then they would hike rates above the neutral rate of 3.00%," Jim Caron, managing director at Morgan Stanley Investment Management, said in a note.

The 10-year Treasury note yield traded around 3.19 percent after the minutes were released. Goldman Sachs rose 3 percent while Morgan Stanley gained 2.7 percent. Bank of America and J.P. Morgan Chase both rose more than 1 percent.

The major indexes traded in a wide range before the minutes were released as investors grappled with a flood of corporate earnings and weakness in the housing market.

"We have a market that's gyrating, trying to find a bottom," said Tom Essaye, founder of The Sevens Report. "This will continue until earnings reaffirm the outlook for next year."

"Bottoms are a process, not events," Essaye added. "It usually take several days and sometimes several weeks."

Netflix posted third-quarter earnings that easily beat expectations. The big beat was driven by stronger-than-expected subscriber growth in both the U.S. and overseas. Its stock rose 5.3 percent.

A trader on the floor of the New York Stock Exchange.
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CSX and Cree also reported better-than-expected earnings Tuesday after the close, while M&T Bank and U.S. Bancorp's results topped estimates Wednesday before the bell.

However, a weaker-than-expected report from IBM sent the stock down more than 7.5 percent and reignited worries about earnings moving forward.

Overall, the earnings season is off to a good start. Of the S&P 500 companies that have reported thus far, 88.5 percent have topped analyst expectations, according to FactSet.

Wednesday's moves come a day after the major indexes posted their best day since March, boosted by strong earnings. On Tuesday, the Dow surged more than 500 points as Goldman Sachs, Johnson & Johnson, and UnitedHealth jumped.

Tuesday's jump helped Wall Street recover some of the steep losses from last week. The Dow and S&P 500 fell more than 4 percent last week, while the Nasdaq lost 3.7 percent.

"There's a bit of fatigue" in the market right now, said Matt Lloyd, chief investment strategist at Advisors Asset Management. "The fundamentals are still in place and earnings look pretty good."

On the data front, housing starts fell 5.3 percent last month, more than expected.

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"The pace of single family home building has slowed over the past 4 months," said Peter Boockvar, chief investment officer of The Bleakley Advisory Group, in a note. "Price inflation along with higher mortgage rates has turned off interested buyers."

The data, coupled with a slew of downgrades and price-target cuts by Credit Suisse, sent housing stocks lower. Home Depot and Lowe's both fell more than 3 percent, while KB Home and Lennar fell 2.8 percent and 2.3 percent, respectively.

Housing stocks have been under pressure for the past month. The iShares U.S. Home Construction ETF (ITB) is down nearly 10 percent for October at the same time interest rates have jumped.

The benchmark 10-year note yield — which is used as a benchmark for mortgage rates — hit its highest level since 2011 last week. The jump has recently stoked fears that higher borrowing costs could slow down the economy.

—CNBC's Spriha Srivastava contributed to this report.