Stocks extended gains on Wednesday afternoon after the Federal Reserve opted to raise rates at its meeting and signaled two more rate hikes this year.
The S&P 500 was up 0.76%, the Dow Jones Industrial Average rose 0.5%, and the Nasdaq increased 0.7%.
Markets "had expected [a rate hike] and they had been very clear in telegraphing that to the Fed as well," Bodhi Ganguli, lead economist at Dun & Bradstreet, said in a phone call. "There was relief that we're on this path to normalization... It basically signals confidence in the U.S. economy, both from the Fed and the markets. If the markets didn't believe it, they wouldn't have reacted positively."
The Fed decided on Wednesday to raise the federal funds rate by 25 basis points to 0.75% to 1% following its March meeting, the third increase since 2008. The decision was near unanimous with only one dissenter, Minneapolis Fed President Neel Kashkari.
The Fed was widely expected to raise interest rates by 25 basis points on Wednesday, particularly after a robust U.S. jobs report for February supported the case for higher rates. The chances of a 25-basis-point rate hike on Wednesday sat at 95% prior to the announcement, according to CME Group fed funds futures.
More importantly for markets, the Fed released updated forecasts, including the '"dot plot" matrix that visualizes each Fed member's expectations for the pace of future hikes. The Fed forecast two more rate hikes in 2017, in-line with its previous forecasts and as markets anticipated.
"The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term," the Fed wrote in its statement. "Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments."
In a press conference after the announcement, Fed Chair Yellen said that the "economy has been doing nicely" and that the central bank would continue to increase rates at a "gradual" pace. Yellen also said that financial conditions have become "somewhat easier" and that recent stock market gains had factored into the decision to hike.
Gains were broad-based following the announcement, though non-cyclical consumer goods, utilities, and telecom stocks had some of the largest increases. The Consumer Staples SPDR ETF (XLP) rose 0.8%, the Utilities SPDR ETF (XLU) increased 1.4%, and the iShares Dow Jones U.S. Telecom ETF (IYZ) climbed 1%.
Crude oil prices rebounded on Wednesday after seven straight days of losses. Prices held higher after a weekly reading on domestic stockpiles showed a surprise decrease. Crude inventories fell by 200,000 barrels in the past week, according to the Energy Information Administration, surprising analysts looking for an increase of 3.7 million barrels. Gasoline and distillates supplies also declined.
Prices slumped a day earlier after the Organization of Petroleum Exporting Countries raised its forecasts for non-member output this year as demand increased and activity in shale production rose. Separately, OPEC member Saudi Arabia said it had raised its production by 263,300 barrels a day in February, ramping up output from a cut at the beginning of the year.
The International Energy Agency on Wednesday said global oil supplies increased by 260,00 barrels a day in February to 96.52 million barrels a day. Output from OPEC members increased by 170,000 barrels a day to 32 million, indicating a 91% compliance rate with the bloc's production cut agreement that went into effect at the beginning of the year.
West Texas Intermediate crude was up 1.8% to $48.61 a barrel on Wednesday.
The energy sector moved higher on Wednesday, led by gains in ExxonMobil (XOM) , Chevron (CVX) , Occidental Petroleum (OXY) , Schlumberger (SLB) and Halliburton (HAL) . The Energy Select Sector SPDR ETF (XLE) rose 1%.
Retail sales in the U.S. in February rose by 0.1%, continuing a trend of higher consumer spending but reluctant spending. The increase was as expected. Sales across categories was mixed with furniture and building materials on the rise, while electronics slumped. Excluding autos and gas, sales increased 0.2%. January's retail sales were revised up to 0.6% growth from 0.4%. Slowing growth in sales was likely due to two factors, according to Barclays analysts: a "retrenchment" after two months of strong numbers and lower tax refunds.
Consumer prices in February rose, though slowed from the pace in January, according to the Bureau of Labor Statistics. Prices increased 0.1%, in-line with estimates. Core consumer prices rose by 0.2%, slowing from 0.3% in January. Consumer prices have risen 2.7% over the past 12 months, while core prices have increased 2.2%.
Manufacturing activity in the New York region remained near two-year highs in March, according to the Empire State manufacturing survey. The measure fell to 16.4 in March from 18.7 in February, its best since 2015. Analysts anticipated a steeper decline to 15.4. New orders improved by 7.8 points to 21.3 in March.
Homebuilder sentiment rose to a 12-year high in March, according to the National Association of Home Builders' confidence index. The measure increased by 6 points to 71. That marks its highest level since June 2005. The increase was six times larger than expected.
Twitter (TWTR) fell 3% after hundreds of accounts were hacked earlier in the day. Hacked accounts posted messages in support of Turkish President Recep Tayyip Erdogan in his friction with Germany and the Netherlands. Many messages mentioned Nazi slogans.
Time Warner (TWX) and AT&T (T) rose slightly Wednesday after receiving approval from the European Commission for their proposed $85 billion merger. The EU said that competition concerns were not raised given that AT&T provides only telecom services to customers in the region, rather than its digital entertainment services in the U.S.
Intel (INTC) moved 1% lower after Credit Suisse downgraded the tech company to neutral from outperform. Analysts said Intel was too expensive right now, noting that it was a "better company than stock."
The Justice Department has charged Russian spies and hackers for the theft of personal data that affected hundreds of millions of Yahoo! (YHOO) users and disrupted the company's sale to Verizon (VZ) , according to The Washington Post. The hack prompted Verizon to drop its purchase price for the core assets of Yahoo! by $350 million to $4.48 billion.
Wall Street Goes to Washington: In the first of a series of conversations with the President's economic advisors, acclaimed author and columnist Michael Wolff will sit down with Anthony Scaramucci, co-founder of private equity firm Skybridge Capital, to discuss the Trump administration, his thoughts on policies and regulations under debate and his outlook for the next four years. Join us for this cocktail party on Monday, March 27 at The Metropolitan Club in New York. The event is free, but seating is limited and reservations are required. For more information or to RSVP, email firstname.lastname@example.org.
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