U.S. Stocks Fall After Wednesday's Rally

By Dan Strumpf

U.S. stocks fell Thursday, pulling back a day after the Federal Reserve's cautious stance on interest rates spurred strong gains.

The Dow Jones Industrial Average dropped 104 points, or 0.6%, to 17972, while the S&P 500 index lost eight points, or 0.4%, to 2091.

The Nasdaq Composite Index rose 14 points, or 0.3%, to 4997.

Shares of energy companies posted some of the sharpest losses as oil prices retreated, with the S&P 500 Energy Index shedding 1.6%. Crude-oil futures declined 1.6% to $43.96 a barrel.

Shares of Apple Inc. gave up early gains, falling 0.6% on its first day of trading as a Dow component. Shares of AT&T Inc., replaced by Apple in the Dow, fell 1.1%.

In its statement on monetary policy Wednesday, the Fed dropped its promise to remain "patient" before lifting interest rates, a widely expected shift that opened the door to rate increases this year. But downbeat economic forecasts and comments by Fed Chairwoman Janet Yellen indicated the central bank remains in no hurry to raise rates. That stance caught many investors off guard and sent shares rallying, then prompted a modest pullback Thursday.

"I just think it's a little bit of a breather, post that somewhat surprising move" on Wednesday, said Brian Fenske, head of sales trading at ITG. "We are in a period where [stocks] are dominated by macro headlines."

On Thursday, the dollar resumed its climb, with the euro falling 1.6% to $1.0659.

Stocks have seen wider swings this month as investors wrestle with the outlook for monetary policy and the impact of the strengthening dollar on corporate earnings. The Dow is nearly 2% below its record of 18288.63 reached in early March and is up nearly 1% for the year.

The Russell 2000 Index, the benchmark for shares of small-cap companies, was poised for its second straight record close with a gain of 0.2%.

Many investors say the Fed's caution on interest rates bodes well for stocks. Michael Ball, portfolio manager at Weatherstone Capital Management, which oversees $785 million, said the Fed's actions on Wednesday have helped ease fears of an imminent rate rise.

"I think that Janet Yellen played it masterfully," he said. "They've given themselves more wiggle room than they have in the past."

Mr. Ball said he recently sold out of his position in energy stocks, amid the steep slide in oil prices. He boosted his weighting in transportation and technology shares instead.

The Fed's first rate increase is likely to spark volatility across markets. However, the Fed has linked rate increases to evidence of an improving economy, which tends to boost corporate profits, said Art Hogan, chief market strategist at Wunderlich Securities. "By the time the Fed starts to lift off it's going to see significant improvement in the economy, and that's good for stocks," he said.

In economic news, jobless claims rose by 1,000 to 291,000 in the week ended March 14, the Labor Department said Thursday. Economists polled by The Wall Street Journal had expected 292,000 new claims.

European markets were mixed. Germany's DAX slipped 0.2% while France's CAC 40 gained 0.1%.

In commodity markets, gold futures gained 1.5% to $1169.10 an ounce.

Treasury prices fell, lifting the 10-year yield to 1.977%, compared with 1.945% on Wednesday.

Home builder Lennar Corp. reported stronger-than-expected results in the first quarter as a continuing recovery in the housing market led to a rise in deliveries and prices. Shares fell 1.3%.

Shares of Target Corp. fell 0.5% after announcing plans to boost the pay of all its workers to at least $9 an hour starting next month, following similar moves by rivals Wal-Mart Stores Inc. and TJX Cos.

Write to Dan Strumpf at daniel.strumpf@wsj.com

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