MARKET SNAPSHOT: Stocks Rally Into The Close As The Fed Stands Pat On Interest Rates

Comment

Shutterstock photo

By Sue Chang and Anora Mahmudova, MarketWatch

Nasdaq Composite climbs to fresh all-time closing high

U.S. stocks rallied Wednesday, with the Nasdaq Composite closing at a record, after the Federal Reserve opted to keep interest rates unchanged as it sought further evidence of economic strength.

The S&P 500 index added 23.36 points, or 1.1%, to close at 2,163.12, aided by a 2.1% jump in the S&P 500's energy sector.

The Dow Jones Industrial Average rose 163.74 points, or 0.9%, to end at 18,293.70, with Boeing Co.(BA), Caterpillar Inc.(CAT) and Chevron Corp.(CVX) leading the way higher.

The policy-setting Federal Open Market Committee, in a 7-to-3 vote, opted to keep rates steady in what Chairwoman Janet Yellen described as a "new normal" as central banks elsewhere around the globe embark upon quantitative-easing measures. Yellen also said she is "pleased with" the health of the economy.

The broader U.S. equity market traded tentatively higher Wednesday after the FOMC decision but caught fire later in the day after Yellen's 2 p.m. Eastern news conference was digested.

The decision to keep rates unchanged was widely expected. But the Fed's tone reflects the recent softening of economic data and is generally positive for risky assets such as equities, said Casey Clark, vice president of investment strategy at Glenmede.

"The case for an increase in the federal funds rate has strengthened but decided, for the time being to wait for further evidence of continued progress toward its objectives," read the FOMC statement.

Live blog: Janet Yellen's press conference (http://blogs.marketwatch.com/capitolreport/2016/09/21/live-blog-and-video- of-the-fed-decision-and-janet-yellen-press-conference-2/)

Kristina Hooper, U.S. investment strategist for Allianz Global Investors, believes the Fed was looking for a convincing reason to tighten the monetary policy but couldn't find one.

"No news is good news for markets today," Hooper said. "There just wasn't a compelling case for a rate hike given the weaker employment data of late and tame inflation," she said.

The Fed inaction, however, makes a December hike more likely, Hooper speculated.

Steven Ricchiuto, chief economist at Mizuho Securities, urged investors to watch economic data for clues on whether the Fed will move in December. "We still believe a rate hike is unwise but [it] will have less of an adverse effect in credit and equity markets...," he said in a note.

The yield on the benchmark 10-year Treasury note slid 1.9 basis point to 1.668% following the Fed's news.

"The knee-jerk reaction in the bond market was for yields to decline, but that may prove short-lived as bond investors begin to perceive the Fed as asleep at the switch when it comes to slowing the recent rising trend of inflation," said Bryce Doty, senior portfolio manager of Sit Fixed Income Advisors.

Stocks had started the day on a positive note as the Bank of Japan overhauled its monetary-policy framework.

The BOJ kept its deposit rate unchanged at negative 0.1% (http://www.marketwatch.com/story/bank-of-japan-keeps-rates- steady-tweaks-policy-framework-2016-09-21). It also introduced a zero interest-rate target for 10-year government bonds, part of what analysts are calling "yield curve control." BOJ's decision spurred a global equity rally, including on Wall Street.

Higher oil prices also helped to buoy investor sentiment. WTI crude futures added 3.5% on hopes that major oil producers could be nearing agreement on a deal to cap output. Oil prices were also lifted after the American Petroleum Institute said late Tuesday that its own data for the week showed a 7.5-million-barrel decrease in crude supplies.

BOJ sparks global gains: The upbeat mood sparked by the BOJ spread to Europe, where banks also rallied, lifting the Stoxx Europe 600 higher. Financial stocks marched higher in Tokyo (http://www.marketwatch.com/story/nikkei-climbs-led- by-financials-in-wake-of-bank-of-japan-announcement-2016-09-21), with the Nikkei 225 index closing up 1.9%. Japan's 10- year sovereign bond briefly hit 0% on Wednesday for the first time since March before falling back in negative territory.

"A steeper yield curve provides the motivation for banks to encourage customers to borrow, and is typically associated with a strengthening economy," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor, in a note.

The Japanese yen initially sold off after the announcement, but has since rebounded. Against the dollar (http:// www.marketwatch.com/story/yen-slides-losing-safe-haven-allure-after-bank-of-japan-decision-2016-09-21), the yen last traded at Yen100.48 after closing late Tuesday in New York at Yen101.72.

Stocks to watch: FedEx Corp.(FDX) jumped 6.9% after the package-delivery giant's adjusted earnings and revenue topped forecasts (http://www.marketwatch.com/story/fedex-cuts-outlook-as-it-integrates-tnt-express-2016-09-20-164855155). That is even as the company cut its outlook to help integrate its TNT Express NV acquisition.

Shares of Viacom Inc. (http://www.marketwatch.com/story/viacom-shares-dip-after-company-issues-q4-profit-warning-cuts- dividend-2016-09-21)(VIA) (VIA) fell 0.3% after the beleaguered company issued a profit warning, forecasting adjusted earnings per share for the fourth quarter will be in the range of 65 cents to 70 cents.

CarMax Inc.(KMX) shared slid 2% after the used car seller reported disappointing fiscal second-quarter results.

Microsoft Corp.(MSFT) late Tuesday said it would increase its quarterly dividend by 8% (http://www.marketwatch.com/ story/microsoft-plans-40-bln-stock-buyback-2016-09-20) over the previous quarter, and it approved a share buyback program of up to $40 billion. Shares of the technology group rose 1.7%.

Other markets: Gold prices closed higher for a third-straight day (http://www.marketwatch.com/story/gold-aims-for- third-straight-win-as-dollar-wavers-2016-09-21) while the dollar index retreated. Gold settled at 1:30 p.m. Eastern, but extended its gains in electronic trade after the Fed's decision to keep rates lower for longer, which weighs on the U.S. dollar, but is bullish for precious metals, which are priced in the currency and that don't offer a yield.

--Barbara Kollmeyer contributed to this article.


  (END) Dow Jones Newswires
  09-21-161657ET
  Copyright (c) 2016 Dow Jones & Company, Inc.



This article appears in: Energy , US Markets , Bonds , Economy , Commodities
Referenced Symbols:


More from Dow Jones Business News

Subscribe






See Dow Jones News

Follow on: