On Wednesday, stocks rose, following the expected hike in short-term interest rates. The increase of 25 basis points and the Federal Reserve Chairperson’s discussion of a clear path of regular increases provided buyers the assurance they needed of future economic growth.
The Fed believes that three rate hikes are needed in 2017 but did not rule out the possibility of a total of four in 2018. The Fed Chair’s statement was interpreted as “a bit dovish” by some floor traders, but most accepted it as “appropriate.” Most appeared pleased by the course of future action outlined the Fed.
The Fed’s cautious stance led to selling in the financial sector, the only sector in the S&P 500 to show a decline, falling 0.1%. Overall, however, stocks advanced: The Dow Jones Industrial Average rose 0.5%, the S&P 500 gained 0.8%, the Nasdaq gained 0.7% and the Russell 2000 jumped 1.5%.
The major sector having the greatest influence on the 500 was energy, up 2.1%. The gains were as a result of a pre-opening report by the API that inventory data verified by the EIA showed an unexpected drawdown of crude oil inventory. The report caused WTI crude to gain 2.1% at $48.71 per barrel.
At the close, the Dow Jones Industrial Average gained 113 points at 20,950, the S&P 500 rose 20 at 2,385, the Nasdaq gained 43 points at 5,900, and the Russell 2000 gained 20, closing at 1,383. The NYSE’s primary exchange traded 913 million shares with total volume of 3.8 billion shares. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 6.5-to-1, and on the Nasdaq, advancers led by 2.3-to-1. Blocks on the NYSE increased to 7,179 from 6,298 on Tuesday.
At least one respected technician, Michael Ashbaugh, noted that the “Transports violate the 50-day moving average.” But that was before the positive reaction to the Fed’s 25 BP rate hike.
Admittedly the Dow Jones Transportation Average is not out of the woods since it failed to recover above its 50-day moving average at 9,290. But it did perform an “outside reversal” with a high at 9,270, just 20 points from the key number at 9,290. A high volume of buying supported the reversal, and so we must wait to see if the Dow Jones Transportation Average follow through with a higher close that would negate the breakdown.
Conclusion: The buyers of stocks hate uncertainty, and so the Fed’s clear plan of a schedule of rate increases based upon rising economic conditions triggered an impressive rally on Wednesday. When Chairperson Janet Yellen made it clear that they plan to increase rates a total of three times this year, and that the FOMC was clearly pleased with the confidence numbers and solid growth that should follow, the market took off.
The bull is alive, and yesterday the Fed acknowledged that it may have a much longer life span with higher pastures ahead.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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