Benchmarks ended higher on Wednesday after minutes from last month's Fed meeting confirmed that "most participants" were open to a rate hike in December. Majority of Fed officials opined that the conditions required for a rate hike could be achieved by the time policy makers are scheduled to meet in December. Meanwhile, an overnight raid in Paris, aimed at nabbing suspects linked to the terror attacks last Friday was also welcomed by investors.
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The Dow Jones Industrial Average (DJI) gained 247.66 points or 1.4% to close at 17,737.16. The Standard & Poor's 500 (S&P 500) advanced 1.6% to close at 2,083.58. The tech-laden Nasdaq Composite Index closed at 5,075.20, increasing 1.8%. The fear-gauge CBOE Volatility Index (VIX) plunged 10.6% to settle at 16.85. A total of around 7.2 billion shares were traded on Wednesday, slightly lower than the last 20-sessions' average of 7.3 billion. Advancers outpaced declining stocks on the NYSE. For 75% stocks that advanced, 22% declined.
Minutes from the Federal Open Market Committee's (FOMC) meeting in October stated that most officials anticipated that conditions to lift short-term interest rates "could well be met by the time of the next meeting" in December. The Fed is waiting to see further improvements in labor market conditions and inflation touching its target rate of 2% before hiking rates.
Economic data has supported majority of Fed officials' view to raise rates. An increase in job additions in October; unemployment rate declining to 5% and significant improvement in wage growth indicated that the labor market is on a solid footing.
Fed officials with a hawkish stance also said that further delay in raising rates will show signs of lack of confidence in the economy. Fed officials said volatility in the financial markets has subsided since September. They said that "the U.S. financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress". Officials opined that there is "solid underlying momentum" in business and consumer demand, despite slowdown in third quarter GDP growth.
Additionally, New York Fed President William Dudley, Cleveland Fed President Loretta Mester and Atlanta Fed President Dennis Lockhart all supported a near-term interest-rate hike. Meanwhile, the CME Group showed that Federal-funds futures on Wednesday indicated a 68% likelihood of a Fed rate hike in its December policy meeting.
Majority of Fed officials' view that economic conditions could be strong enough to sustain a December rate hike boosted the broader markets. While the S&P 500 posted its biggest gain in four weeks, the Nasdaq recorded its largest point and percentage gain since Oct 23. The blue-chip index also extended its three-day winning streak on Wednesday.
Greater possibility of rate hike in December also boosted financial stocks. The Financial Select Sector SPDR (XLF) gained 1.8%. Key financial stocks including Bank of America Corporation ( BAC ), Wells Fargo & Company ( WFC ), JPMorgan Chase & Co. ( JPM ) and Citigroup Inc. ( C ) increased 2.4%, 1.3%, 2% and 2.8%, respectively.
Separately, the Health Care Select Sector SPDR (XLV) advanced 1.9% and was the biggest gainer among the S&P 500 sectors. Key stocks from the sector including Johnson & Johnson ( JNJ ), Pfizer Inc. ( PFE ), Gilead Sciences Inc. ( GILD ), Merck & Co. Inc. ( MRK ) and Amgen Inc. ( AMGN ) increased 1.2%, 1.3%, 3.4%, 0.9% and 2.1%, respectively. Overall, all 12 sectors of the S&P 500 ended in the green.
Coming to economic news, construction of new homes touched its lowest level in October since early spring. The U.S. Department of Commerce reported that housing starts decreased 11% from September to a seasonally adjusted annual rate of 1,060,000 in October, more than the consensus estimate of a decrease to 1,161,000.
However, permits for single-family houses climbed to its highest level last month since the end of 2007. Building permits in October increased 4.1% from September's figure to 1,150,000, higher than the consensus estimate of building permits increasing to 1,145,000.
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