Stocks Rally After Fed Announces Interest Rate Hike - U.S. Commentary

(RTTNews) - With traders reacting positively to the Federal Reserve's monetary policy announcement, stocks moved sharply higher during trading on Wednesday. The strong gains on the day extended the upward move seen over the two previous sessions.

The major averages ended the day firmly in positive territory, just off their highs for the session. The Dow surged up 224.18 points or 1.3 percent to 17,749.09, the Nasdaq soared 75.77 points or 1.5 percent to 5,071.13 and the S&P 500 jumped 29.66 points or 1.5 percent to 2,073.07.

The rally on Wall Street came after the Federal Reserve announced its widely expected decision to raise interest rates by 25 basis points.

Citing the economic outlook and the time it takes for policy actions to take effect, the Fed raised the target range for the federal funds rate to 0.25 to 0.50 percent.

The Fed said monetary policy remains accommodative even after the rate hike, which marked the first rate increase since 2006.

The central bank said economic conditions are expected to evolve in a manner that will warrant only gradual increases in rates but noted the actual path will the depend on incoming economic data.

"In short, everything is data dependent," said Paul Ashworth, Chief U.S. Economist at Capital Economics. "And, with the full employment part of its mandate already largely achieved, the data the Fed will be watching most closely is inflation."

Before the start of trading, the Commerce Department released a report showing that housing starts rebounded by more than expected in the month of November.

The report said housing starts jumped 10.5 percent to an annual rate of 1.173 million, while economists had expected housing starts to climb 7.6 percent.

The Commerce Department also said building permits, an indicator of future housing demand, unexpectedly surged up 11 percent to a rate of 1.289 million in November.

Meanwhile, the Federal Reserve released a separate report showing a bigger than expected drop in industrial production in November, with the decrease partly reflecting a steep drop in utilities output.

The report said industrial production dropped by 0.6 percent in November following a revised 0.4 percent decrease in October. Economists had expected production to edge down by 0.2 percent.

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 gold sector, the NYSE Arca Gold Bugs Index surged up by 4.6 percent.

The gains by gold stocks came amid an increase by the price of the precious metal, with gold for February delivery climbing $15.20 to $1,076.80 an ounce.

Biotechnology stocks also saw significant strength on the day, driving the NYSE Arca Biotechnology Index up by 2.8 percent. The index continued to regain ground after ending Monday's trading at its lowest closing level in well over a month.

Considerable strength was also visible among utilities stocks, as reflected by the 2.7 percent jump by the Dow Jones Utilities Average. The gain lifted the average to a one-month closing high.

Telecom, trucking, and housing stocks also showed strong moves to the upside, while oil service stocks bucked the uptrend amid a steep drop by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw considerable strength during trading on Wednesday. Japan's Nikkei 225 Index surged up by 2.6 percent, while Hong Kong's Hang Seng Index jumped by 2 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.7 percent, the French CAC 40 Index and the German DAX Index both edged up by 0.2 percent.

In the bond market, treasuries saw considerable volatility on the heels of the Fed decision before closing modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ticked up by 1.9 basis points to 2.287 percent.

Looking Ahead

Reaction to the Fed decision may continue to impact trading on Thursday, although reports on weekly jobless claims and Philadelphia-area manufacturing activity are also likely to attract attention.