Stocks Close Modestly Higher Ahead of Thursday's Rate Decision

U.S. equity markets climbed modestly on Wednesday as Wall Street anxiously awaited the results of the FOMC’s two-day meeting.

The Dow Jones Industrial Average was 138 points higher, or 0.83% to 16738. The S&P 500 rose 17 points, or 0.87% to 1995, while the Nasdaq Composite gained 28 points, or 0.59% to 4889.

The telecom sector was the only of ten S&P 500 decliners, while energy jumped more than 2%.

Today’s Markets

As the Federal Open Market Committee began its two-day September policy meeting, Wall Street kept its focus on a fresh batch of disappointing economic data and what it might mean for the central bank’s decision on interest rates. The broader averages saw their biggest two-day gains since August.

The Labor Department’s consumer price index showed a 0.1% drop in consumer-level inflation in August, the first decline in seven months. Wall Street had expected the gauge to remain unchanged from the prior month. Excluding the volatile food and energy components, prices rose 0.1%, in line with forecasts.

Barclays analysts said in a note the data is consistent with an overall softness in inflation thanks to consistently low energy prices and weak services CPI, which rose 0.1% for the month and includes prices for shelter, transportation, physician services, etc.

“Some of the services softness is likely to be transitory, in our view, particularly the declines in prices of airfares and lodging away from home,” the note read. “However, we think today’s reading will likely give the FOMC more reason to pause. We continue to think that the underlying trend in consumer prices remains positive and in particular, services inflation, although we do not expect a strong upward trend to emerge in the near term.”

Traders in the U.S. also had a chance to digest the latest reading on the housing market with data from the National Association of Home Builders. The NAHB’s gauge of homebuilder sentiment rose from 62 in September form 61 the month prior, which was mostly in line with expectations. The data likely hints at continuing improvement in housing activity for the last half of the year.

In light of recent disappointing data points, many on Wall Street have revised out their expectations for when the Federal Reserve is likely to hike short-term interest rates from historic lows in the aftermath of the Great Recession, which began in 2008. Before last month’s global market turmoil thanks to doubts about the stability of China’s economy, many on the Street had expected the Fed to hike rates this month.

“We’re of the opinion the Fed won’t do anything at this meeting and will continue to talk as if they’ll do something at the next meeting to keep the market on its toes,” Eric Ervin, CEO of Realty Shares, said. “[Today’s] CPI explains why there’s little concern over a massive inflation bubble – and we don’t have big moves in commodity markets. It gives the Fed more ammunition to hold off one more time, be extra cautious, and debate whether or not to move soon.” Ervin said the wait-and-see approach is one of the central bank’s best tools.

“If they talk about raising rates, the dollar rallies, the markets soften, and they’ll get some of the results they’re looking for without actually having to raise rates,” he said.

Ahead of Thursday’s policy statement at 2 p.m., the yield on the benchmark U.S. 10-year Treasury bond was mostly flat, rising 0.015 percentage point to 2.296%.

Elsewhere in the market, the energy sector saw a substantial boost on Wednesday, rising more than 2% in recent action, as global crude prices rallied. The U.S. Energy Information Administration said crude stockpiles fell by 2.1 million barrels last week.  U.S. crude jumped 5.74% to $47.15 a barrel, while Brent, the international benchmark, rose 4.19% to $49.75.

Metals also saw substantial gains as gold prices rose 1.49% to $1,119 a troy ounce. Silver rallied 4% to $14.88 an ounce, while copper traded up 1.05% to $2.46.

The U.S. dollar was mixed against a handful of global currencies, while the euro rose 0.06% against the greenback.

Global markets were bullish heading into the start of the Fed’s two-day meeting. Equity indexes in Asia skyrocketed. China’s Shanghai Composite index jumped 4.89%, while Hong Kong’s Hang Seng jumped 2.38%, and Japan’s Nikkei added 0.81%.

In Europe, the Euro Stoxx 50 rose 1.38%, while the German Dax added 0.38%, the French CAC 40 gained 1.67%, and the UK’s FTSE 100 was up 1.49%.