Federal Reserve opted to keep interest rates unchanged
U.S. stocks rallied on Wednesday, 21 September 2016 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 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 Dow Jones Industrial Average rose 163.74 points, or 0.9%, to end at 18,293.70. The Nasdaq Composite Index climbed 53.83 points, or 1%, to finish at a record close of 5,295.18. 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.
Boeing, Caterpillar and Chevron led the way higher.
Participants mulled over the latest policy statement from the FOMC and commentary from Fed Chair Janet Yellen. The FOMC opted to leave the target range for the fed funds rate unchanged at 0.25% to 0.50%. However, three committee members dissented, indicating that they supported an interest rate hike at the September meeting. Additionally, the committee lowered rate hike expectations going forward, estimating one rate hike in 2016, two to three in 2017, and three in 2018.
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 decision to keep rates unchanged was widely expected.
Earlier Wednesday, Japan's central bank took an unexpected step, launching a 10-year interest rate target to step up its fight against deflation. Against the yen, the dollar dropped about 1.2%. The Bank of Japan also said it would continue quantitative easing until inflation exceeds 2%, effectively strengthening its commitment to continue aggressive easing.
Among stocks under focus, FedEx Corp. jumped 6.9% after the package-delivery giant's adjusted earnings and revenue topped forecasts. That is even as the company cut its outlook to help integrate its TNT Express NV acquisition. Separately, Microsoft Corp.late Tuesday said it would increase its quarterly dividend by 8% over the previous quarter, and it approved a share buyback program of up to $40 billion.
Bullion prices ended substantially higher at Comex on 21 September 2016. Gold futures settled higher on Wednesday, scoring a third straight advance, then extended its gain after the Federal Reserve left interest rates unchanged, but signaled that a rate increase was likely before the year's end. Prices had spent most of the trading session in the green amid volatile currency moves, including a weaker dollar, even in the wake of the Bank of Japan's aggressive steps to fight deflation announced earlier Wednesday.
Ahead of the Fed announcement, December gold rose $13.20, or 1%, to settle at $1,331.40 an ounce. December silver climbed 49.1 cents, or 2.6%, to settle at $19.768 an ounce.
Crude oil futures ended higher on Wednesday, 21 September 2016 after U.S. government data revealed a drop in crude inventories, marking the third such unexpected weekly decline in a row. Expectations swaying back toward the likelihood of an output deal among major oil producers next week also delivered a shot in the arm for the Fed. Futures received an added boost following a widely expected decision by the Federal Reserve decided to keep interest rates steady.
November West Texas Intermediate crude which had been up about 2.8% just before the Fed announcement, settled up $1.29, or 2.9%, at $45.34 a barrel on the New York Mercantile Exchange. Brent crude for November delivery however, was last up 10 cents at $46.93 a barrel in electronic trading on London's ICE Futures exchange.
The U.S. Energy Information Administration reported Wednesday that domestic crude supplies fell by 6.2 million barrels in the week ended 16 September 2016. A 2.8 million-barrel climb was expected. The EIA has now reported unexpected supply declines for three weeks in a row. Gasoline supplies fell by 3.2 million barrels, while distillate stockpiles rose by 2.2 million barrels. Total domestic crude production, meanwhile, edged up by 19,000 barrels a day to 8.512 million barrels a day.
The economic report of the day at Wall Street showed that the MBA Mortgage Index indicated that mortgage applications declined 7.3% in the week ending September 17. This followed a 4.2% gain in the prior week.
Treasuries ended on a mixed note with the long end of the curve outperforming. The yield on the 2-yr note finished flat (0.77%) while the yield on the 10-yr note declined four basis points (1.65%).
Today's participation was roughly in-line with the recent average as more than 873 million shares changed hands on the NYSE floor.
Tomorrow's economic data will include weekly initial claims (consensus 262k) and the FHFA Housing Price Index for July, which will cross the wires at 8:30 ET and 9:00 ET, respectively. Separately, Existing Home Sales for August (consensus 5.50 million) will be released at 10:00 ET.
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