Positive Reaction To Fed Leads To Higher Close On Wall Street - U.S. Commentary

(RTTNews) - With traders reacting positively to the Federal Reserve's monetary policy announcement, stocks moved mostly higher over the course of the trading session on Wednesday. The gains on the day lifted the major averages to their best closing levels in over two months.

The major averages ended the day in positive territory but off their highs for the session. The Dow rose 74.23 points or 0.4 percent to 17,325.76, the Nasdaq advanced 35.30 points or 0.8 percent to 4,763.97 and the S&P 500 climbed 11.29 points of 0.6 percent to 2,027.22.

The higher close on Wall Street came after the Fed announced its widely expected decision to leave interest rates unchanged in a range from 0.25 percent to 0.50 percent.

In its accompanying statement, the Fed said data received since the previous meeting in January suggests economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months.

The Fed also said inflation has picked up in recent months but noted that it continues to run below the 2 percent target due to declines in energy prices and in prices of non-energy imports.

Looking ahead, the central bank said it expects economic activity to expand at a moderate pace and labor market indicators to continue to strengthen, although it said global economic and financial developments continue to pose risks.

The Fed's revised forecast for interest rates shows that officials expect rates to be lower at the end of the year than predicted in December.

The new median projection calls for rates at 0.9 percent at the end of the year, down from the previous estimate of 1.4 percent.

Steve Murphy, U.S. Economist at Capital Economics, said, "That new projection now means that officials now expect two rate hikes this year, rather than four back in December."

"The end-2017 forecast was revised down to 1.9%, from 2.4% while projections at end-2018 were revised down to 3.0%, from 3.3%," he added.

The Fed statement largely overshadowed the economic data released earlier in the day, including reports showing a jump in housing starts but a bigger than expected drop in industrial production.

Sector News

Gold stocks showed a substantial move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 6.6 percent. With the jump, the index ended the session at a ten-month closing high.

The rally by gold stocks came as the price of the precious metal spiked higher in electronic trading in reaction to the Fed announcement.

Steel stocks also moved sharply higher over the course of the trading session, resulting in a 4.3 percent jump by the NYSE Arca Steel Index.

Considerable strength was also visible among natural gas stocks, as reflected by the 4.2 percent gain posted by the NYSE Arca Natural Gas Index. Southwestern Energy (SWN), Devon Energy (DVN) and Williams (WMB) posted standout gains.

Most of the other major sectors also moved higher on the day, with oil, airline, software, and chemical stocks seeing notable strength.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index slid by 0.8 percent, while China's Shanghai Composite Index rose by 0.2 percent.

The major European markets also ended the day mixed. While the French CAC 40 Index edged down by 0.2 percent, the German DAX Index and the U.K.'s FTSE 100 Index advanced by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries ended the day modestly higher in reaction to the Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.1 basis points to 1.938 percent.

Looking Ahead

While trading on Thursday may continue to be impacted by reaction to the Fed statement, traders are also likely to keep an eye on reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.