Stocks Close Modestly Higher After Fed, Dow Sets Record Close - U.S. Commentary

(RTTNews) - Stocks saw some volatility following the release of the Federal Reserve's monetary policy announcement on Wednesday but managed to end the day modestly higher. With the upward move, the Dow reached a new record closing high.

The major averages ended the day in positive territory but well off their best levels. The Dow rose 24.88 points or 0.2 percent to 17,156.85, the Nasdaq climbed 9.43 points or 0.2 percent to 4,562.19 and the S&P 500 crept up 2.59 points or 0.1 percent to 2,001.57.

The modestly higher close on Wall Street reflected a positive reaction to the statement from the Fed, which was largely unchanged from July.

Traders seemed pleased that the Fed reiterated its pledge to keep interest rates low for a "considerable time" as well as its assessment that "there remains significant underutilization of labor resources."

The Fed also announced its widely anticipated decision to scale back its asset purchase program by another $10 billion to just $15 billion per month. The central bank said it still expects to end the program at its next meeting.

The vote for the monetary policy action was 8 to 2, with Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher dissenting due to objections to the interest rate guidance.

However, buying interest may have been limited by the Fed's latest interest rate projections, which suggest that some officials expect rates to be raised faster than previous anticipated.

According to the latest projections, the median estimate calls for the federal funds rate to be at 1.375 percent by the end of 2015 compared to the median projection of 1.125 percent in June.

The median projection for the federal funds rate at the end of 2016 also climbed to 2.875 percent from 2.50 percent.

"If everyone on the FOMC had a vote, the consensus would be decidedly hawkish," said Chris Low, chief economist at FTN Financial. "But the five governors are clearly more dovish than the balance of the 12 regional presidents, only five of whom vote at a time."

He added, "The decision to keep the 'considerable time' language even as the median fed funds forecasts drifted higher is proof of the Board's power."

Before the start of trading, the Labor Department released a report that unexpectedly showed a modest drop in consumer prices in the month of August.

The Labor Department said its consumer price index dipped by 0.2 percent in August, reflecting the first drop in consumer prices since April of 2013.

The report also said the annual rate of consumer price growth slowed to 1.7 percent in August compared to the Federal Reserve's 2 percent target.

Sector News

While many of the major sectors ended the day showing only modest moves, significant strength remained visible among railroad stocks. The Dow Jones Railroads Index surged up by 1.8 percent to a new record closing high.

Greenbrier (GBX) and Kansas City Southern (KSU) turned in two of the railroad sector's best performances, jumping by 3 percent and 2.8 percent, respectively.

Housing stocks also saw considerable strength on the day, driving the Philadelphia Housing Sector Index up by 1.6 percent. Homebuilder Lennar (LEN) helped lead the sector higher after reporting better than expected third quarter results.

The strength among housing stocks also came following the release of a report from the National Association of Home Builders showing that homebuilder confidence jumped to a nearly nine-year high in September.

Brokerage, steel, and semiconductor stocks also saw some strength on the day, while gold and oil service stocks came under pressure along with the prices of their associated commodities.

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 edged down by 0.1 percent, while Hong Kong's Hang Seng Index jumped by 1 percent.

The major European markets also ended the day mixed. While the U.K.'s FTSE 100 Index slipped by 0.2 percent, the German DAX Index and the French CAC 40 Index rose by 0.3 percent and 0.5 percent, respectively.

In the bond market, treasuries came under pressure in reaction to the Fed announcement and closed modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.1 basis points to 2.60 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on reports on jobless claims, housing starts, and Philadelphia-area manufacturing activity.