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US stocks jump after Fed leaves interest rates unchanged

Published 21/09/2016

Janet Yellen announces that the Federal Reserve is keeping its key interest rate unchanged (AP)
Janet Yellen announces that the Federal Reserve is keeping its key interest rate unchanged (AP)

US stocks climbed on Wednesday as investors were relieved that the Federal Reserve once again left interest rates unchanged.

The decision sent dividend-paying stocks higher, while energy companies jumped with the price of oil.

Stocks made a big gain after the Fed's announcement, which ended about weeks of confusion for investors.

With the central bank confirming that it will raise interest rates slowly, bond yields dropped and utility and phone companies rose.

The price of oil rose after the US government said energy stockpiles shrank last week.

In the last two weeks, a few Fed leaders gave differing opinions on whether the central bank should raise interest rates now.

That surprised investors, and stocks gyrated for a few days before settling down to tiny moves this week.

"If we had not received these mixed messages, I don't think anybody would have been surprised," said Sam Stovall, US equity strategist for S&P Capital IQ.

The Dow Jones industrial average added 163.74 points, or 0.9%, to 18293.70. The Standard & Poor's 500 index picked up 23.36 points, or 1.1%, to 2163.12. The Nasdaq composite rose 53.83 points, or 1%, to a record 5295.18.

Oil prices jumped as fuel stockpiles shrank and investors hoped that supply gluts are easing, which would allow prices to rise.

The Energy Information Administration said oil inventories dropped by 6.2 million barrels and gasoline inventories decreased by 2.5 million barrels last week.

S&P Global Platts says analysts expected oil inventories to grow and gasoline stockpiles to shrink by a smaller amount.

Benchmark US crude added 1.29 US dollars (£0.99), or 2.9%, to 45.34 dollars (£34.92) a barrel in New York.

Brent crude, used to price international oils, rose 95 cents (£0.73), or 2.1%, to 46.83 dollars (£36.07) a barrel in London.

That helped energy companies, and Anadarko Petroleum rose 2.78 dollars (£2.14), or 4.8%, to 61.06 dollars (£47.03) while Chevron added 1.93 dollars (£1.49), or 2%, to 99.63 dollars (£76.74).

The Federal Reserve said the economy has gotten a bit stronger after some shaky results in the spring, and that the argument for raising interest rates has also gotten stronger.

However, the central bank said it wants to see more improvement in the job market before raising rates.

The Fed raised interest rates in December and has not made another move since.

The benchmark interest rate was cut to zero in late 2008 and at its current pace it will take many years for rates to get back to pre-financial crisis levels.

Investors were surprised earlier this month when Fed official Eric Rosengren, who has been reluctant to raise rates, suggested he might be willing to raise rates this month.

For several days stocks made big moves up and down as investors wondered if that would happen.

In the end, Mr Rosengren was one of three Fed voters who wanted to raise rates on Wednesday. Seven members voted to leave rates where they are.

By Fed standards, that is a divided result. Investors doubt the Fed will take action in November, when it meets right before the presidential election, but they think there is a good chance rates will rise in December.

The Dow was up about 30 points before the Fed's decision was announced. The ruling boosted dividend-paying companies while bond prices changed course and moved higher. The yield on the 10-year Treasury note fell to 1.66% from 1.69%.

Germany's Dax rose 0.4% and the FTSE 100 of Britain added 0.1%. France's CAC 40 climbed 0.5%. Tokyo's Nikkei 225 reversed an early loss and closed 1.9% higher. The Hang Seng of Hong Kong gained 0.6% and South Korea's Kospi rose 0.5%.


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