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U.S. Stocks Close Moderately Higher As Fed Signals Future Rate Cut

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Stocks showed typical volatility on the heels of the Federal Reserve's monetary policy announcement but managed to end Wednesday's trading mostly higher amid indications the central bank plans to cut interest rates sometime in the future.

The major averages posted moderate gains, once again reaching their best closing levels in over a month. The Dow edged up 38.46 points or 0.2 percent to 26,504.00, the Nasdaq climbed 33.44 points or 0.4 percent to 7,987.32 and the S&P 500 rose 8.71 points or 0.3 percent to 2,926.46.

The higher close on Wall Street came after the Fed suggested the next move for rates is likely to be lower, although buying interest was somewhat subdued amid signs the rate cut could be delayed until next year.

The Fed announced its widely expected decision to leave interest rates unchanged on Wednesday, with the focus largely on the wording of the accompanying statement.

The statement said the Fed continues to see a sustained economic expansion, a strong labor market, and inflation near its 2 percent target as the most likely outcomes but noted uncertainties about this outlook have increased.

"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion," the Fed said.

The line in the statement mirrors the pledge Fed Chairman Jerome Powell made in a speech earlier this month, which helped spark expectations of a near-term interest rate cut.

Notably, the Fed also omitted its reference to remaining "patient" when determining future changes to interest rates.

The central bank also revealed that its decision to leave rates unchanged was not unanimous, with St. Louis Fed President James Bullard preferring to lower rates by 25 basis points.

Powell acknowledged in his post-meeting press conference that "Many participants believe that some cut to the fed funds rate would be appropriate in the scenario they see as most likely."

The Fed's dot plot projections show eight members expect rates to be unchanged by the end of the year, although a matching number expect at least one rate cut. One member expects a rate hike.

By the end of 2020, nine members expect a rate cut, five expect rates to remain unchanged and three expect an increase in rates.

Sector News

Gold stocks showed a significant move to the upside in afternoon trading, driving the NYSE Arca Gold Bugs Index up by 1.5 percent. With the jump, the index ended the session at its best closing level in a year.

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

Considerable strength also emerged among software stocks, as reflected by the 1.1 percent gain posted by the Dow Jones U.S. Software Index.

Healthcare, pharmaceutical and utilities stocks also saw notable strength, while banking stocks came under pressure as the day progressed.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1.7 percent, while Hong Kong's Hang Seng Index spiked by 2.6 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the French CAC 40 Index inched up by 0.2 percent, the German DAX Index edged down by 0.2 percent and the U.K.'s FTSE 100 Index fell by 0.5 percent.

In the bond market, treasuries showed a significant turnaround in reaction to the Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.1 basis points to 2.029 percent after reaching a high of 2.099 percent.

Looking Ahead

Reaction to the Fed statement may continue to impact trading on Thursday, although traders are also likely to keep an eye on reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.

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