The Dow Jones Industrial Average fell for a second day as investors digested the Federal Reserve's latest policy update, where it moved up its timeline for interest rate hikes and forecast higher inflation.
Materials-related stocks led the losses as the Fed's move to eventually raise rates, along with a current campaign by China to tamp down metals prices, took the air out of a surge in commodity prices this year.
Losses in the overall market were tame however and the S&P 500 was still just 1% below an all-time high as the central bank still maintained its asset-buying program, which some investors argued would support equities some more in the short term.
The Dow Jones Industrial Average dropped about 200 points, weighed down by biggest losers Dow Inc. and Caterpillar as most commodity prices took a hit for a second day. The S&P 500 fell about 0.1%. The Nasdaq Composite gained 0.7% as investors huddled in some Big Tech stocks with Tesla, Snowflake and Shopify all up about 1%. Twilio gained more than 5%.
The closely-watched Federal Reserve meeting Wednesday spurred a sell-off in equities after the central bank moved up its timeline for rate hikes, seeing two increases in 2023. The Dow lost about 265 points and the S&P 500 edged 0.5% lower.
The Fed also hiked its inflation forecast to 3.4% for the year, a percentage point higher than the FOMC's forecast in March.
Materials stocks were weaker Thursday as higher rates may further take the air out of a big commodities rally in 2021. China is also cracking down on the commodities surge to ease inflation fears. Freeport-McMoRan led materials stocks lower, down about 5%. Copper futures were off by 5%.
"The prospect of an earlier tapering would slow the supply of U.S. dollars and lead to a sizable decline in commodity prices across the board," Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. "Commodities have been a popular investment in the last year as investors have been adding some portfolio protection against inflation. So many investors were probably overexposed going into the Fed meeting and the U.S. dollar's response is forcing some reconsideration."
Hedge fund legend David Tepper told CNBC's Scott Wapner that the Fed did a good job on Wednesday and that "the stock market is still fine for now." The S&P 500 is less than 0.8% from an all-time high.
Markets rallied off their intraday lows Wednesday after Fed Chair Jerome Powell said projections for future rate increases should be "taken with a big grain of salt" and reiterated that he believes that inflation is transitory. Powell also did not issue guidance on when the central bank will begin tapering its bond-buying program.
"You can think of this meeting that we had as the 'talking about talking about' meeting, if you'd like," Powell said when asked about tapering. "I now suggest that we retire that term, which has served its purpose."
The Fed chair said the central bank will continue to monitor the economic recovery and will provide "advance notice" before announcing any updates regarding tapering.
The Labor Department reported that initial jobless claims rose last week to 412,000, up from the previous week's 375,000. Economists polled by Dow Jones expected jobless claims of 360,000.
Lennar popped 3.5% after reporting better-than-expected earnings.