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Fed's Message Of Patience Extends Early Rally On Wall Street - U.S. Commentary

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With traders reacting positively to the Federal Reserve's monetary policy announcement, stocks moved sharply higher over the course of the trading session on Wednesday. With the rally on the day, the major averages reached their best closing levels in nearly two months.

The major averages pulled back off their highs of the session in the final hour of trading but remained firmly positive. The Dow surged up 434.90 points or 1.8 percent to 25,014.86, the Nasdaq soared 154.79 points or 2.2 percent to 7,183.08 and the S&P 500 jumped 41.05 points or 1.6 percent to 2,681.05.

Stocks accelerated to the upside after the Fed announced its widely expected decision to leave interest rates unchanged and indicated the central bank will remain patient regarding further rate hikes.

The Fed said following a two-day meeting it has decided to maintain the target range for the federal funds rate at 2.25 to 2.50 percent.

The accompanying statement included some notable changes from last month, including dropping a reference to the Fed's plan for further gradual rate increases.

The central bank also removed a sentence describing the risks to the economic outlook as "roughly balanced."

Instead, the Fed said still sees a sustained expansion of economic activity, strong labor market conditions, and inflation near its symmetric 2 percent objective as the most likely outcomes but also pointed to global economic and financial developments and muted inflation pressures.

The Fed subsequently said it will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes.

Fed Chairman Jerome Powell noted in his press conference that the "case for raising rates has weakened somewhat."

Similar to the decision to raise interest rates last month, the Fed's decision to leave interest rates unchanged was unanimous.

The next Fed meeting is scheduled for March 19th and 20th, with CME Group's FedWatch tool currently indicating a 98.7 percent chance the central bank will once again leave rates unchanged.

"A March hike was all but ruled out before this meeting, but a hike in the second quarter now appears to be in serious doubt," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "With financial conditions easing over recent weeks and the economic data still solid, we still on balance expect one more rate hike from the Fed, either at the April/May or June meeting."

The positive sentiment generated by the Fed statement added to the buying interest generated in reaction to earnings news from big-name companies like Boeing (BA) and Apple (AAPL).

Shares of Boeing moved significantly higher after the aerospace giant reported better than expected fourth quarter results and provided upbeat guidance for full-year 2019.

Tech giant Apple also showed a strong move to the upside after reporting fiscal first quarter results that exceeded analyst estimates, including substantial growth in its services business.

Traders also reacted positively to comments from Apple CEO Tim Cook, who expressed optimism about U.S.-China trade talks.

Meanwhile, traders largely shrugged off mixed economic data showing stronger than expected private sector job growth but an unexpected decrease in pending home sales.

Sector News

Tobacco stocks turned in some of the market's best performances on the day, resulting in a 6.1 percent spike by the NYSE Arca Tobacco Index. The index skyrocketed to its best closing level in well over a month.

Substantial strength was also visible among steel stocks, which benefited from optimism about the U.S.-China trade talks. The NYSE Arca Steel Index surged up by 3.9 percent to a more than two-month closing high.

Semiconductor stocks also saw considerable strength, with Advanced Micro Devices (AMD) leading the way higher after the chip maker reported mixed fourth quarter results but President and CEO Lisa Su said she expects strong sales growth in 2019.

Software, oil service, and retail stocks also showed significant moves to the upside, moving higher along with most of the other majors sectors.

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 fell by 0.5 percent, while Hong Kong's Hang Seng Index rose by 0.4 percent.

The major European markets also ended the day mixed. While the German DAX Index fell by 0.3 percent, the French CAC 40 Index jumped by 1 percent and the U.K.'s FTSE 100 Index surged up by 1.6 percent.

In the bond market, treasuries rebounded strongly following the release of the Fed statement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 1.7 basis points to 2.695 percent.

Looking Ahead

Earnings news is likely to be in focus on Thursday, with Microsoft (MSFT), Facebook (FB), Qualcomm (QCOM), Tesla (TSLA), and Visa (V) among the companies releasing their quarterly results after the close of today's trading.

ConocoPhillips (COP), DowDuPont (DWDP), General Electric (GE), Hershey Foods (HSY), MasterCard (MA), Nokia (NOK), Sprint (S), and UPS (UPS) are also among the companies due to report their results before the start of trading on Thursday.

Traders are also likely to keep an eye on the latest economic data, including reports on weekly jobless claims, Chicago-area business activity, and new home sales.

The new home sales report for November will be the first data released by the Commerce Department since the government shutdown ended.

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