Stocks fade late as oil dips, Fed gives investors pause

The Federal Reserve's latest take on the U.S. economy got investors in a selling mood Wednesday, as stocks fell sharply for the second straight day.

Wall Street also took a hit when benchmark U.S. oil sank to its lowest level in nearly six years, hurting prospects for energy companies.

The Dow Jones industrial average dropped 195.84 points, or 1.13 percent, to close at 17,191.37. The Standard & Poor's 500 index lost 27.39 points, or 1.35 percent, to 2,002.16. The Nasdaq composite dropped 43.50 points, or 0.93 percent, to 4,637.99.

The central bank issued a statement Wednesday making clear that it would remain "patient" in raising interest rates from near zero, which was expected. But the Fed also strengthened its assessment of the U.S. economy, noting that it is expanding at a solid pace and generating strong job growth.

That's good news for Main Street and corporate America, but signals that the Fed is moving closer to raising rates, even if it's not contemplating an imminent hike. When interest rates remain low, they tend to make stocks more attractive than bonds.

"The market is, on one hand, happy the Fed is saying things look solid, but it means at some point, we will get that first rate hike," said Quincy Krosby, market strategist for Prudential Financial.

The Energy Department reported that U.S. oil inventories rose to the highest levels ever recorded. Those high supplies drove crude prices to the lowest level since March 2009.

Benchmark U.S. crude fell $1.78 to close at $44.45 a barrel in New York. As recently as June, it traded above $100.

Inflation has stayed ultralow partly because of the plunge in energy prices and a steadily rising dollar. The Fed noted it anticipates that inflation will decline further before starting to rise gradually.

Prices for the benchmark 10-year Treasury jumped after the Fed statement came out, knocking the yield to 1.70 percent, the lowest level this year. It edged back up to 1.72 percent late in day, compared with 1.82 percent late Tuesday. The yield on the 30-year bond, meanwhile, touched a record low of 2.27 percent.

"The Fed has a much more beneficial view on the drop in oil than the stock market does," said John Canally, chief economic strategist at LPL Financial.

Energy stocks fell the most among the 10 sectors in the S&P 500. Among the biggest decliners were oil- and gas-exploration companies, drilling services, and equipment providers.

Boeing got a lift after reporting that its profit vaulted 19 percent in the fourth-quarter on strong demand for commercial airliners. The stock rose $7.16, or 5.4 percent, to $139.64.