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

(RTTNews) - 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. The upward move lifted the tech-heavy Nasdaq to a new record closing high.

The major averages pulled back off their highs of the session going into the close but remained firmly positive. The Dow advanced 163.74 points or 0.9 percent to 18,293.70, the Nasdaq jumped 53.83 points or 1 percent to 5,295.18 and the S&P 500 surged up 23.36 points or 1.1 percent to 2,163.12.

The rally on Wall Street came after the Fed left interest rates unchanged as expected but signaled that a rate hike is likely before the end of the year.

The statement from the Fed said the case for an increase in the federal funds rate has strengthened but that the central bank decided to wait for additional data for "the time being."

While the Fed said economic growth has picked up from the modest pace seen in the first half of the year, it noted that inflation continues to run below the two percent target.

Reflecting division within the committee, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren voted to raise rates by a quarter point.

Nonetheless, the updated forecasts provided by the Fed indicated that fourteen of seventeen members expect at least one rate hike by the end of the year.

"So a December hike looks extremely likely right now, barring the politics - but with the Presidential race looking closer and closer, there is still a chance of further delay," said Rob Carnell, ?Chief International Economist at ING.

Earlier in the day, traders reacted to the Bank of Japan's decision to modify its existing policy framework in order to achieve its inflation target.

"With a view to achieving the price stability target of 2 percent at the earliest possible time, the bank decided to introduce 'QQE with yield curve control,'" the Bank of Japan said.

Accordingly, the Japanese central bank will control short-term and long-term interest rates and expand the monetary base until inflation exceeds 2 percent.

The BoJ will continue applying a negative interest rate of 0.1 percent to the policy rate balances in current accounts held by financial institutions.

Sector News

While most of the major sectors moved to the upside on the day, gold stocks posted particularly strong gains. Reflecting the strength in the sector, the NYSE Arca Gold Bugs Index surged up by 7.7 percent.

The rally by gold stocks came amid a notable increase by the price of the precious metal, with gold for December delivery climbing $13.20 to $1,331.40 an ounce.

Substantial strength was also visible among energy stocks, which moved sharply higher as the price of crude oil for November delivery jumped $1.29 to $45.34 a barrel.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index soared by 3.3 percent, the Philadelphia Oil Service Index spiked by 2.6 percent, and the NYSE Arca Oil & Gas Index shot up by 2.2 percent.

Steel, utilities, computer hardware, and transportation stocks also saw considerable strength on the day, reflecting broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index surged up by 1.9 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index inched up by 0.1 percent, the German DAX Index and the French CAC 40 Index rose by 0.4 percent and 0.5 percent, respectively.

In the bond market, treasuries closed 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 basis points to 1.668 percent.

Looking Ahead

Reaction to the Fed announcement may continue to impact trading on Thursday, although traders will also be presented with several U.S. economic reports.

Traders are likely to keep an eye on the reports on weekly jobless claims, existing home sales, and leading economic indicators.