Benchmarks finished in the green on Wednesday after the Fed decided to hike key interest rates in its two-day policy meeting. Although a more aggressive stance was expected from the Fed, it maintained a conservative approach in its policy statements which in turn pulled dividend-paying sectors northward. Fed’s lack of hawkish stance weighed on the dollar, which along with a surprise decline in domestic crude inventories boosted oil prices and eventually energy stocks.
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The Dow Jones Industrial Average (DJI) increased 0.5%, or 112.73 points, to close at 20,950.10 The SP 500 rose 0.8% to close at 2,385.26. The tech-laden Nasdaq Composite Index closed at 5,900.05, gaining 0.7%. The fear-gauge CBOE Volatility Index (VIX) declined 8.1% to settle at 11.30. A total of around 7.87 billion shares were traded on Wednesday higher than the last 20-session average of 6.98 billion shares. Advancers significantly outpaced declining stocks on the NYSE. For 85% stocks that advanced, 13% declined.
What Boosted the Benchmarks?
Following its two-day policy meeting, the Federal Open Market Committee (FOMC) said that the Fed had increased interest rate from a range of 0.5%-0.75% to 0.75%-1% “in view of realized and expected labor market conditions and inflation”. This was the second rate hike since December 2016 and third in last ten years. The FOMC also “indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.” It also expected that inflation will stabilize “around 2 percent over the medium term.”
Additionally, Fed Chairwoman Janet Yellen said that the “U.S. economy is performing well” and shown are confidence “in the robustness of the economy and its resilience to shocks.” Further, the Fed continued to expect two more rate increases this year. Investors clearly expected a more hawkish approach from the Fed about the pace and number of further rate hikes this year.
Lack of aggressive tone from the Fed pulled the dollar down. A weaker dollar had a positive impact on material prices including oil prices. The ICE Dollar Index (DXY) which compares the greenback with six other currencies decreased 1% to $100.56 yesterday.
Moreover, oil prices rose on surprise fall in domestic crude stockpiles and weaker dollar. The U.S. Energy Information Administration (EIA) reported that the U.S. commercial crude oil inventories fell 0.2 million barrels to 528.2 million for the week ended March 10, after increasing for nine consecutive weeks. Both the WTI and Brent crude soared 2.3% and 1.7% to $48.86 a barrel and $51.81 per barrel respectively.
Rise in oil prices led the Energy Select Sector SPDR (XLE) to increase 2.2% and become the biggest gainer among the key SP 500 sectors. Dow components Exxon Mobil Corporation ( XOM ) and Chevron Corporation ( CVX ) rose 1.3% and 1.4%, respectively. Both the companies possess a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Also, markets witnessed a shift towards dividend-yielding sectors like utilities and real estate from treasury bonds and financial stocks. Both the Utilities Select Sector SPDR (XLU) and Real Estate Select Sector SPDR (XLRE) rose 1.6% and 1.9%, respectively.
On the economic front, business inventories increased by 0.3% in January, marking its smallest rise since last October. Meanwhile, the U.S. Department of Commerce reported that retail sales increased only 0.1% in February following a 0.6% jump in previous month. Also, the Bureau of Labor Statistics reported that CPI and core-CPI gained 0.1% and 0.2%, respectively, last month.
Stocks That Made Headlines
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