Dow Jones Retakes 17,000 on Dovish Fed 

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U.S. equities rallied again on Thursday — the seventh gain in eight sessions for large-cap stocks — thanks to a dovish takeaway from the latest Federal Reserve meeting minutes.

While most Fed policymakers continue to believe a rate hike will happen by the end of the year, future market odds keep dropping with a better-than-even chance not seen until March 2016 as inflation remains soft.

With the September payrolls report coming in soft, and Chinese markets reopening weak overnight after a holiday closure, there is simply less and less justification to raising rates for the first time since 2006 before the end of the year.

In the end, the Dow Jones Industrial Average grew by 0.8%, the S&P 500 gained 0.9%, the Nasdaq Composite went up 0.4% and the Russell 2000 finished off 0.9% higher. Crude oil gained 3.8% to close at $49.63 a barrel, while gold lost 0.8% and the U.S. dollar shed 0.2%.

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Energy stocks led the way thanks to the lift in oil, adding 1.9%, followed by industrials which gained 1.4%. Healthcare stocks were the laggards, down 0.4%.

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Calls for consolidation in the business communications industry from an activist investor lifted Polycom (NASDAQ:PLCM) and Mitel Networks (MITL) by nearly 17%. EMC (EMC) gained 4.7% after the Wall Street Journal reported the company is in talks to be acquired by Fell.

EBay (EBAY) lost 6% after Channel Advisor reported September same-store sales increased just 1.1% — the weakest result since February 2011. Recent fallen IPO favorites Shake Shack Inc (NYSE:SHAK) and Fitbit Inc (NYSE:FIT) lost 4.7% and 1.7%, respectively, as they drop from recent trading ranges. Meanwhile, Apple Inc. (NASDAQ:AAPL) remains a drag on ho-hum iPhone sales, losing another 1.2%.

After the close, Alcoa (NYSE:AA) kicked off the third-quarter earnings season with disappointment: Earnings came in at just 7 cents per share vs. the 14 cents analysts were expecting. Revenues totaled $5.6 billion vs. the $5.67 billion that was expected, and adjusted operating profit margin fell to 12.5% vs. 16.6% last year.

AA shares dropped 4.6% in afterhours trading.

Overall, S&P 500 earnings are expected to fall 5.1% for the quarter, which would be the first back-to-back earnings decline since 2009.

Back to the Fed: After the release of the minutes, comments from San Francisco Fed President John Williams hit the tape in which he largely reiterated comments from Oct. 6. He still expects a rate liftoff this year, still says the September “no hike” policy decision was a close call, and still believes there are positive signs coming from the labor market.

Michael Hanson at Bank of America Merrill Lynch believes steady job gains in October and November should keep a December rate hike on track, but does highlight “a significant chance that the FOMC will wait into 2016 before hiking.”

The promise of continued cheap money stimulus from the Federal Reserve in the wake of last Friday’s weak jobs report has been the main impetus keeping stocks moving higher. But with the major averages contending with overhead resistance as a sure-to-be-disappointing Q3 earnings season gets started, a pullback to test the bulls’ resolve seems likely here.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/fed-minutes-rate-hike-dow-jones-earnings/.

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