Positive Reaction To Fed Leads To Rally On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply higher over the course of the trading on Wednesday, partly offsetting the steep losses posted over the past few sessions. A positive reaction to the Federal Reserve's monetary policy statement contributed to the rebound.

The major averages saw further upside going into the close, ending the session near their best levels of the day. The Dow surged up 288.00 points or 1.7 percent to 17,356.87, the Nasdaq soared 96.48 points or 2.1 percent to 4,644.31 and the S&P 500 jumped 40.15 points or 2 percent to 2,012.89.

The rally on Wall Street came as the Fed's monetary policy statement was seen as putting off an anticipated interest rate hike until later next year.

The Fed left interest rates at near-zero levels and said it can be patient in beginning to normalize the stance of monetary policy.

The use of the word "patient" attracted considerable attention, although the Fed said the guidance is consistent with its previous pledge to keep rates at low levels for a "considerable time."

While many traders were focused on the semantics, Rob Carnell, chief international economist at ING, said the other biggest feature of the statement was the degree of dissent.

"No less than three members dissented," Carnell said. "Fisher, who seems to be getting frustrated by FOMC foot-dragging, Kocherlakota, who is concerned about undershooting the price stability target, and Plosser, who thinks the statement should be more state contingent, not time contingent."

In her subsequent press conference, Fed Chair Janet Yellen claimed the new language in the statement does not indicate a change in policy intentions.

Yellen went on to say that the Fed is unlikely to start the process of normalizing policy for at least the next couple of meetings.

Peter Boockvar, managing director at the Lindsey Group, said, "Let's be honest, the Fed is winging it and playing games of semantics doesn't do us any favors from a market perspective and certainly not from an economic one."

"Short rates don't belong at zero anymore and the Fed is struggling with when and how to change that at the same time not wanting to scare the markets and the global economy," he added.

The Fed statement overshadowed a report from the Labor Department showing that U.S. consumer prices fell by more than anticipated in November amid another sharp drop in energy prices.

Sector News

While most of the major sectors moved to the upside, gold stocks posted particularly strong gains on the day. The NYSE Arca Gold Bugs Index surged up by 5.3 percent after ending the previous session at its lowest closing level in over a month.

The rally by gold stocks came even though gold for February delivery inched up only $0.20 to $1,194.50 an ounce and turned lower in electronic trading.

Energy stocks also saw substantial strength on the day, bouncing further off their recent lows. An increase by the price of crude oil contributed to the strength in the sector, with crude for January delivery climbing $0.54 to $56.47 a barrel.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index and the NYSE Arca Oil & Gas Index jumped by 5 percent and 4.8 percent, respectively.

Considerable strength was also visible among biotechnology stocks, as reflected by the 3.6 percent gain posted by the NYSE Arca Biotechnology Index. ImmunoGen (IMGN) posted a standout gain, soaring by 9.2 percent.

Steel, railroad, computer hardware, and airline stocks also saw significant strength, reflecting the broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index rose by 0.4 percent, while China's Shanghai Composite Index surged up by 1.3 percent.

Meanwhile, the major European markets ended the day mixed. While the German DAX Index edged down by 0.2 percent, the U.K.'s FTSE 100 Index inched up by 0.1 percent and the French CAC 40 Index rose by 0.5 percent.

In the bond market, treasuries pulled back sharply in reaction to the Fed's monetary policy statement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.7 basis points to 2.148 percent.

Looking Ahead

While reaction to the Fed statement may continue to impact trading on Thursday, reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity may attract some attention.

Business software giant Oracle (ORCL) may also be in focus after releasing its second quarter results after the close of today's trading.