Stocks rise on Fed news
NEW YORK — Stocks brushed off a muted start on Wall Street and notched modest gains Wednesday after the Federal Reserve reaffirmed that it is prepared to cut interest rates if needed to shield the U.S. economy from trade conflicts or other threats.
In a widely expected move, the central bank’s policymakers decided to leave the Fed’s benchmark interest rate unchanged. Still, by signaling the possibility of lower rates, the Fed reassured investors who have been worried that the trade war between Washington and Beijing could weigh on global economic growth, and by extension, corporate profits.
The reaction to the Fed’s midafternoon statement was more pronounced in the bond market, where the yield on the 10-year Treasury note slid to 2.03%, its lowest level since November 2016. The move signals that bond traders see an increased likelihood that the Fed will lower rates. Investors are betting on at least one interest rate cut this year, possibly as early as July.
“The story of the last six months is equities are comforted when they believe that the Fed is going to be supportive and going to provide offsets to some of the policy uncertainties that are out there,” said Willie Delwiche, investment strategist at Baird.
The latest gain extended the market’s winning streak to a third day, adding to a June rebound in stocks after a dismal sell-off in May.
The S&P 500 rose 8.71 points, or 0.3%, to 2,926.46. The broad market index is within striking range of its all-time high, set on April 30.
The Dow Jones Industrial Average gained 38.46 points, or 0.1%, to 26,504. The Nasdaq composite added 33.44 points, or 0.4%, to 7,987.32. The Russell 2000 index of smaller companies picked up 5.35 points, or 0.3%, to 1,555.58.
Major stock indexes in Europe finished mixed.
U.S. stock indexes spent much of the day wavering between small gains and losses as investors waited for the Fed to deliver its update on interest rates following a two-day meeting of policymakers.
The Fed left its key interest rate, which influences many consumer and business loans, unchanged Wednesday in a range of 2.25% to 2.5%. That’s where it’s been since December.
The central bank also said that because “uncertainties” have increased, it would “act as appropriate to sustain the expansion.” That language echoed a remark that Chairman Jerome Powell made two weeks ago that many investors interpreted as a signal that rate cuts were on the way, triggering a rally on Wall Street.
The Fed also removed a reference to being “patient” about adjusting rates. That suggests that the central bank is now inclined to begin cutting rates for the first time in more than a decade to help stabilize the economy.
“They don’t want to overreact to one data point here or one data point there,” Delwiche said. “They’re trying to establish what is the trend in the economy and the degree to which economic conditions have actually deteriorated before making a move.”
Most analysts say they think economic growth has slowed sharply in the April-June quarter to around a 1.5% percent annual rate, only half the pace of the past year.