After treading water for much of the session, U.S. equity markets rallied into the close of trade on Monday, eyeing the looming rate decision from the Fed and keeping tabs on a pressured oil market.
The Dow Jones Industrial Average was higher by 105 points, or 0.61% to 17370. The S&P 500 gained 9 points, or 0.48% to 2022, while the Nasdaq Composite was up 18 points, or 0.38% to 4952.
The materials sector saw the only decliner at the close of trade, while telecommunications and consumer staples gained the most.
There may not be a Santa Claus rally underway on Wall Street, but the markets could get what they’ve been waiting for all year on Wednesday: A rate hike from the Federal Reserve.
At the conclusion of its two-day policy-setting meeting in the middle of the week, the central bank is widely expected to announce a 0.25% increase in short-term interest rates. The move has been closely charted in global markets after a somewhat surprising decision in September to keep rates steady – Wall Street had been mostly split at that point after tumult caused by China’s devaluation of the yuan, and debt problems in Greece.
However, after months of additional data on the U.S. economy, many on Wall Street expect the Fed to feel comfortable that it’s close to meeting its dual mandate of full employment and price stability after two robust months of job creation, and inflation that has been creeping its way closer to the 2% target.
In recent action, the yield on the benchmark 10-year U.S. Treasury bond rose 0.086 percentage point to 2.225%.
Economists at Deutsche Bank said in a note they expect little change to the central bank’s policy statement after what turned out to be relatively upbeat language in October.
“The statement is likely to repeat that household and business spending ‘have been increasing at solid rates,’ while ‘the pace of job gains’ has improved further,” they expected. “There might be some mention of weakness in the factory and/or energy-related sectors, but this should not detract from what should be a constructive economic message.”
Global oil prices in recent weeks have weakened substantially, and on Monday morning, fell below the $35 a barrel mark for the first time since February 2009, a fresh multi-year low. The weakness comes as market participants continue to fear the global supply glut – especially after the International Energy Agency said on Friday oversupply in world oil markets is likely to continue through 2016. That announcement came on the heels of a decision by OPEC to keep production steady, holding pressure on non-members of the cartel like U.S. shale players.
In recent action, West Texas Intermediate crude rose 1.94% to $36.31 a barrel, while Brent, the international benchmark, shed 0.03% to $37.92 a barrel.
Barclays oil analysts said in a note while there’s clearly negative sentiment in the market following recent price action, fundamentals have “not deteriorated markedly.”
“The post-OPEC price decline is less a function of deteriorating long-term fundamentals and more a function of short-term sentiment, momentum, and weather, in our view,” they wrote. “In that sense, we see the 2008 low Brent price of $36 a barrel as a target that could be met or exceeded in the next couple of weeks or in 1Q, though this is not our base case.”
Elsewhere in the commodities market, metals saw a sea of red as gold prices declined 0.79% to $1,067 a troy ounce. Silver paced 1.11% lower, while copper declined 0.40% to $2.11 a pound.
No economic data out of the U.S. was on tap Monday, but ahead of Wednesday’s FOMC statement, traders will get the latest look at consumer price inflation, factory activity in the New York region, homebuilder sentiment, and housing starts.