Stocks Rally As Fed Refrains From Tapering Stimulus Program - U.S. Commentary

(RTTNews) - Stocks moved sharply higher in the latter part of the trading day on Wednesday as traders reacted positively to the Federal Reserve's highly anticipated monetary policy announcement. The strong gains on the day extended the recent upward trend by the markets.

The major averages pulled back off their best levels of the day going into the close but remained firmly positive. The Dow jumped 147.21 points or 1 percent to 15,676.94, the Nasdaq surged up 37.94 points or 1 percent to 3,783.64 and the S&P 500 soared 20.76 points or 1.2 percent to 1,725.52.

With the gains on the day, the Dow and the S&P 500 set new record closing highs, while the Nasdaq reached its best closing level in thirteen years.

The rally on Wall Street came on the heels of news that the Federal Reserve surprised most economists by refraining from scaling back its asset purchase program.

The Fed said it would continue to purchase bonds at a pace of $85 billion per month, noting that it decided to wait for more evidence that economic progress will be sustained before adjusting the pace of its purchases.

Looking ahead, the central said future decisions about when to moderate the pace of asset purchases will be based on whether incoming information continues to support the expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective.

The Fed noted that the asset purchases are not on a preset course and their pace will remain contingent on the economic outlook and the assessment of the likely efficacy and costs of such purchases.

In remarks at a press conference, Fed Chairman Ben Bernanke suggested that the decision to maintain the asset purchase program was a precautionary move due in part to a potential budget crisis in Washington.

Paul Edelstein, Director of Financial Economics at IHS Global Insight, said, "Given recent developments in interest rates and fiscal policy, the committee wasn't ready to pull the trigger. But we suspect that the bias on the committee remains against a long-lasting QE program."

"Barring a really bad outcome from the upcoming battles over fiscal policy in the fall and winter, we expect the Fed to taper at the December meeting," he added.

With the spotlight on the Fed, traders largely shrugged off a Commerce Department report showing a smaller than expected increase in housing starts.

The report said housing starts rose 0.9 percent to an annual rate of 891,000 in August from the revised July estimate of 883,000. Economists had expected housing starts to climb to 915,000 from the 896,000 originally reported for the previous month.

Meanwhile, building permits, an indicator of future housing demand, tumbled 3.8 percent to an annual rate of 918,000 in August from the revised July rate of 954,000.

Sector News

Most of the major sectors moved notably higher following the announcement from the Fed, reflecting broad based buying interest.

Gold stocks showed a particularly strong move to the upside, driving the NYSE Arca Gold Bugs Index up by 9.6 percent. The strength among gold stocks came as the price of the precious metal spiked higher in electronic trading.

Substantial strength also emerged among housing stocks, as reflected by the 4.3 percent advance by the Philadelphia Housing Sector Index. The gain lifted the index to a three-month closing high.

Commercial real estate stocks also saw considerable strength on the day, resulting in a 3.4 percent gain by the Morgan Stanley REIT Index. With the gain, the index reached its best closing level in well over a month.

Utilities, steel, and chemical stocks also saw significant strength, while health insurance and brokerage stocks were among the few groups that bucked the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Wednesday. Japan's Nikkei 225 Index surged up by 1.4 percent, while Hong Kong's Hang Seng Index ended the day down by 0.3 percent.

The major European markets also ended the day mixed. While the U.K.'s FTSE 100 Index edged down by 0.2 percent, the German DAX Index and the French CAC 40 Index rose by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries showed a strong move to the upside on the heels of the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 14.5 basis points to 2.708 percent.

Looking Ahead

Trading on Thursday will continue to be impacted by reaction to the Fed decision, although traders are also likely to keep an eye on the release of reports on weekly jobless claims, existing home sales, and Philadelphia-area manufacturing activity.

On the earnings front, business software giant Oracle (ORCL) is among a few notable companies releasing their quarterly results after the close of today's trading.