The main news today was the FOMC’s announcement on interest rates.  Here are the pertinent parts from the press release:

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

The emboldened sentence from the press release was the key phrase for traders, who interpreted the statement as implying interest rate hikes are not ending soon.  As a result, they sold shares after the Fed released the statement.  In other news, Bank of America announced a merger with MBNA for 36 billion.  However, this news was not strong enough to prevent today’s sell-off.
The 10-Year Treasury rose 9/32 to yield 3.92%.  The bond market rallied on the drop in the National Association of Purchasing Managers Index from 54.1 to 53.6.  In addition, the market interpreted the phrase “With underlying inflation expected to be contained” to mean that short-term inflation was under control, increasing bond’s overall after-inflation return.  Finally, traders focused on a possible weak showing in Friday’s ISM manufacturing number.

Oil fell 76 cents to close at $56.50/bbl.  The market continued to sell-off in the wake of yesterday’s announcement of increased oil inventories.  In addition, traders are still taking some profits from Monday’s record high.

The dollar lost .27% versus the euro and gained .4% versus the yen.  The dollar/euro trade was purely technical.  The dollar is overbought versus the euro, indicating traders have made paper profits and are converting some of these profits to cash.  The dollar increased versus the yen largely on the FOMC announcement.  Higher US interest rates make dollar-denominated assets more attractive to investors.

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