Stocks Close Modestly Higher Following Fed-Induced Volatility - U.S. Commentary

(RTTNews) - Stocks saw considerable volatility in reaction to the Federal Reserve's monetary policy announcement before ending Wednesday's trading modestly higher. With the gains on the day, the major averages extended the upward move seen in the previous session.

The major averages pulled back off their highs going into the close but managed to hold on to slim gains. The Dow edged up 31.26 points or 0.2 percent to 17,935.74, the Nasdaq rose 9.33 points or 0.2 percent to 5,064.88 and the S&P 500 crept up 4.15 points or 0.2 percent to 2,100.44.

The higher close on Wall Street came as traders reacted to some relatively dovish signals from the Federal Reserve reinforcing the view that the eventual increase in interest rates will be gradual.

In its highly anticipated monetary policy announcement, the Fed left interest rates unchanged, as was widely expected, and reiterated that the outlook for rates will be data dependent.

Regarding the economy, the central bank said recent data suggests that economic activity has been expanding moderately after having changed little during the first quarter.

Reflecting the sluggishness in the first quarter, the Fed downwardly revised its forecast for GDP growth in 2015 to 1.8 percent to 2.0 percent.

The Fed's dot plot projections continued to imply two quarter-point rate hikes this year, although the projections for the end of 2016 and 2017 were both lowered.

Michael Gregory, Deputy Chief Economist at BMO Capital Markets, said, "The flatter trajectory reflects the hawks' now lower starting points and, importantly, a greater conviction among the doves that the policy normalization process is going to be very gradual."

"We have been forecasting for a while that the Fed will start to hike rates in September, at a quarter-per-quarter cadence through the end of next year," he added. "We are sticking to our call, particularly since the FOMC now seems to have come around to it as well."

The central bank is due to hold another meeting next month, but most analysts continue to expect the first rate hike to be put off until at least September, when Fed Chair Janet Yellen is scheduled to hold her next press conference.

Sector News

While many of the major sectors ended the day showing only modest moves substantial strength was visible among gold stocks. The NYSE Arca Gold Bugs Index surged up by 2.4 percent after hitting a nearly six-month intraday low.

The strength that emerged among gold stocks came as the price of the precious metal moved higher in electronic trading, as the value of the U.S. dollar pulled back in reaction to the Fed announcement.

Utilities stocks also moved to the upside, resulting in a 1 percent gain by the Dow Jones Utilities Average. With the gain, the average climbed further off the eight-month closing low it set on Monday.

Commercial real estate, electronic storage, and tobacco stocks also saw some strength on the day, although buying interest was relatively subdued.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday. Hong Kong's Hang Seng Index advanced by 0.7 percent and Australia's All Ordinaries Index jumped by 1 percent. However, Japan's Nikkei 225 Index bucked the uptrend and edged down by 0.2 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the French CAC 40 Index slumped by 1 percent, the German DAX Index and the U.K.'s FTSE 100 Index fell by 0.6 percent and 0.4 percent, respectively.

In the bond market, treasuries rebounded in reaction to the Fed announcement, ending the day modestly higher. Subsequently, the yield on the benchmark ten-year note, edged down by 1.2 basis points to 2.306 percent after reaching a high of 2.403 percent.

Looking Ahead

While trading on Thursday may continue to be impacted by reaction to the Fed, traders are also likely to keep an eye on reports on jobless claims, consumer prices, and Philadelphia-area manufacturing.