US Stocks Rally as Wall Street Waits For Fed Outlook
New York (Dec 15) Wall Street rallied on Tuesday as investors placed bets on a dovish Federal Reserve rate outlook on Wednesday.
All benchmark indexes ended the day sharply higher. The S&P 500 bounced 1.5%, the Dow Jones Industrial Average added 1.3%, and the Nasdaq rose 1.4%.
Whether markets can extend the day's gains or shuffle further into the red for the year depends on the Fed's rhetoric in its statement and Chair Janet Yellen's comments in the press conference shortly after.
"With respect to the FOMC statement, we expect little change in tone from what was a relatively upbeat October communiqué," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "We expect the ... language to reinforce policymakers' desire to raise interest rates at a "gradual" pace, economic and financial conditions permitting."
The dot plot matrix, a representation of the pace at which Fed members expect to hike rates, could make or break a rally on Wednesday.
"There is a risk that the financial markets will focus less on what the FOMC statement and Yellen say and more on what the "dots" show," added LaVorgna.
But, while there is a chance for change, the likelihood is the dot plots will remain little changed, according to Deutsche Bank analysts. GDP growth estimates and inflation rates are likely to remain near their previous forecast levels so the need to shift rate expectations is minimal.
The December decision is one of the more highly anticipated events in the Fed's history. The meeting, which concludes on Wednesday with an announcement at 2 p.m. EST, will likely result in the first interest rate hike in nearly a decade. Odds for a hike were boosted following a better-than-expected jobs report for November.
Crude oil was also a key contributor to Tuesday's market gains. West Texas Intermediate oil jumped 2.9% to $37.35 a barrel in a rebound following an 11% decline last week. Crude closed out its worst weekly performance last week after the Organization of Petroleum Exporting Countries opted to leave production at records highs to maintain market share.
"Crude oil prices have turned ... higher as a further technical recovery after holding above December 2008 lows in Monday's trade," Timothy Evans, energy futures specialist at Citi, wrote in a note. "Oil traders are curious about possible ripple effects from a Federal Reserve rate decision on Wednesday, but will mostly watch the US dollar for the indirect impact on commodity investment flows."
Source: TheStreet
