The benchmark S&P 500 index extended its loss to four consecutive sessions after the Federal Reserve published its minutes for the rate-setting meeting this month.
The index concluded the session at 3,991.05, losing 6.29 points or 0.16 percent. The losing streak was the S&P 500's longest negative run since December last year. It was also the second straight day for the index to finish below 4,000 points, a level not seen since January 20.
Most of the 11 sectors within the S&P index closed in the red, with energy and real estate being the worst-performing sectors, declining by 0.8 percent and one percent, respectively.
The energy sector closed lower for seven consecutive sessions on Wednesday due to volatile commodity prices linked to the market's concerns over fuel demand and future economic growth.
Shares of online real estate marketplace CoStar Group tumbled by 5.1 percent after the company announced that it would not proceed with the purchase of Move, a real estate listing company. Move also closed 3.2 percent lower after the news came out.
Another major index on Wall Street, the Dow Jones, also closed lower at 33,045.09 — losing 84.50 points or 0.26 percent. The Nasdaq was the only major index to close higher at 11,507.07 after adding 14.77 points or 0.13 percent.
The declines experienced by the S&P and the Dow Jones, however, were not as sharp as on Tuesday, which was the worst daily market performance this year. For the Dow Jones, Tuesday's decline even wiped out its gain since January 1.
Wall Street rallied in the first few weeks of 2023, with all three major indexes posting monthly gains last month, as investors expected the Fed to pause its rate hikes and make a policy pivot by the end of the year. However, the stock market has become more volatile this month as investors predict that interest rates will remain high longer than anticipated.
According to the meeting minutes, almost all of the members of the Federal Open Market Committee (FOMC) agreed with a 25-basis-point interest rate hike for this month, notably smaller than the previous increase of 50 basis points in December.
Despite the smaller rate increase, the minutes indicated that the central bank would maintain its hawkish monetary policy, which started in March last year.
"It's clear that the Fed is determined to keep on with its rate-hiking campaign, and they are going to do it even as recession risks grow," Ed Moya, a senior market analyst at OANDA, said.
"And that's why, after digesting the minutes, you saw markets softening a little bit."
Ed Moya, Senior Market Analyst at OANDA
The recent interest rate hike pushed the federal funds rate to range between 4.5 and 4.75 percent, with investors expecting the rate to peak between 5.25 and 5.5 percent. To reach the peak, the central bank will likely do two more hikes, each by 25 basis points.
S&P 500 to post 9.4 percent increase this year
A recent Reuters poll predicted that the S&P 500 would conclude 2023 at 4,200 points, a 9.4 percent increase compared to the previous year. The forecast did not change from the poll conducted last November despite recent headwinds in the equity market.
Sameer Samana, a global market strategist at Wells Fargo Investment Institute, attributed the resilience in the job market and overall economy as reasons for the index to still advance, even if the Fed would maintain tight monetary policy longer than expected.
The Dow Jones is also expected to see an annual increase of 9.2 percent by the end of 2022, ending the year at 36,200.