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Stock Market Today - 1/26: Dow Closes Lower As Fed Plans March Rate Hikes; Nasdaq Books Small Gain

Wall Street closed lower Wednesday after the Fed teed-up March rate hikes and hinted an a near-term reduction of it $9 trillion balance sheet.

Updated at 4:18 pm EST

U.S. stocks ended lower Wednesday, while Treasury bond yields and the dollar surged higher, following a statement from the Federal Reserve that suggested it could reduce its $9 trillion balance sheet at the same time it hikes rates as part of its inflation fight.

Fed Chairman Jerome Powell, in fact, said the balance sheet is "substantially larger than it needs to be", and confirmed that its reduction would come alongside rate hikes while speaking to the media in his regular press briefing.

The move followed the central bank's unanimous decision to hold rates unchanged a record low of 0% to 0.25%, while confirming that its pandemic asset purchase program will conclude at the end of March. 

The Dow Jones Industrial Average was marked 130 points lower by the close of trading, while the S&P 500 was marked 6.6 points lower from last night's close.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.532% higher, but close to a two-and-a-half year low of 96.487, while benchmark 10-year Treasury note yields jumped 6 basis points to 1.851%. The tech-focused Nasdaq Composite gained 2 points.

U.S. stocks, which finished lower again Tuesday following another whipsaw session that lifted the CBOE's VIX  (VIX)  volatility gauge close to the highest level of the year, are still looking at one of their worst starts to any year in more than a decade, pinched by concerns over slowing economic growth, rising interest, a Covid-hit supply chain and waning corporate profits.

That said, a solid near-term sales forecast from Microsoft  (MSFT) - Get Microsoft Corporation Report -- which offset a muted reading of the tech giant's second quarter earnings -- and the prospect of a record profits from Tesla  (TSLA) - Get Tesla Inc Report after the bell has steadied some of the market's nerves ahead of the Fed rate decision at 2:00 pm Eastern time.

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The simmering tensions between Russia and the U.S., played out in the form of a possible incursion into the Ukraine, has lifted global oil prices back towards their recent seven-year highs, with Brent crude futures for March delivery rising $1.81 to $89.98 per barrel in early New York trading.

Boeing shares, in fact, were the notable mover, falling 4.8% after posting a massive fourth-quarter loss of $7.69 per share, falling 1.7% as the planemaker booked $3.5 billion in new charges linked to delays in its 787 Dreamliner program.

Microsoft, meanwhile, reversed earlier pre-market declines to rise 2.9% as investors reacted to solid near-term sales forecasts that offset a mixed batch of second quarter earnings for the world's second-largest tech giant.

Tesla  (TSLA) - Get Tesla Inc Report shares, too, were active ahead of a fourth quarter earnings report that is expected to show record revenues for the clean energy carmaker.

Tesla, which delivered a record 936,000 cars last year, is forecast to post total revenues of $16.35 billion for the three months ending in December, a more than 52% increase from the same period last year. The Street is also expecting a bottom line of $2.31 per share, up from 80 cents per share in the final quarter of 2020.

AT&T shares fell 8.4% after posting stronger-than-expected fourth-quarter earnings Wednesday as subscribers to its HBO streaming services neared 74 million, boosting revenues in its WarnerMedia division.

Another hot stock Wednesday was Mattel  (MAT) - Get Mattel, Inc. Report, which surged more than 4.3% following a Wall Street Journal report that suggested the toymaker had won back the rights to sell Disney  (DIS) - Get Walt Disney Company Report inspired characters from its main rival Hasbro  (HAS) - Get Hasbro, Inc. Report.

In overseas markets, Europe's Stoxx 600 closed 1.68% higher in Frankfurt trading while the MSCI ex-Japan index in Asia was little-changed at 612.36 points.