Wall Street stretched gains on Wednesday, despite pressure from low oil prices, after the Federal Reserve hiked rates for the first time in nearly a decade.
At 3:27 p.m. in New York, the Dow Jones Industrial (INDEXDJX:.DJI) jumped 1.2% to 17,729.75. The S&P 500 (INDEXSP:.INX) surged 1.4% to 2,071.71. The Nasdaq Composite (INDEXNASDAQ:.IXIC) was also up 1.4% at 5,067.80.
The U.S. central bank was widely expected to raise the fed funds rate by a quarter point on Wednesday, while emphasizing that the pace of tightening will be gradual. The hike was the first since June 2006.
“A decade in the making, the Fed’s vote to finally lift interest rates off their 0.25% base marks a watershed in the global economy," said Neil Blake, Head of EMEA & UK Research at CBRE.
West Texas Intermediate, the U.S. oil benchamr, settled down $1.83 to $35.52 a barrel on the New York Mercantile Exchange, the lowest level since February 2009. Brent, the global benchmark, fell 2.9% to $37.35 a barrel on ICE Futures Europe.
INTEREST RATES HIKE
U.S. stocks extended gains after the Federal Reserve hiked its key interest rate for the first time in nearly a decade.
At 2:05 p.m. in New York, the Dow Jones Industrial (INDEXDJX:.DJI) was up 0.7% to 17,650.04. The S&P 500 (INDEXSP:.INX) rose 0.8% to 2,059.14, while the Nasdaq Composite (INDEXNASDAQ:.IXIC) rose 0.8% at 5,032.80.
The bank hiked its fed funds rate to a range of 0.25% to 0.5%, halting an unprecedented seven-year streak of near-zero interest rates.
The vote was 10-0.
The board of directors also raised the discount rate to 1% from 0.75%.
The bank said interest rates are only likely to increase in a "gradual" manner, ending up at a long-run target of 3.5%. That was unchanged from its September forecast.
LUNCHTIME
The early bout of optimism on Wall Street has dissipated, with investors seeking sanctuary in defensive stocks ahead of the Fed's interest rate announcement.
“The time for talking is over at the Fed, as the committee prepare to raise rates for the first time in nine years,” said Josh Mahony at spread betting firm IG.
“Given market expectations of a rate hike at the top-end of the likely reality, there seems to be a good chance the Fed will under-hike, causing a relief rally,” Mahony suggested.
Oil stocks are back under the baton after a surprise 4.8mln barrels rise in the US's crude oil stockpiles.
The Dow Jones, weighed down by energy giant Exxon (NYSE:XOM), which is down 1%, was clinging on to a seven point gain in lunchtime trading.
The broader-based S&P 500 was up eight points, or 0.4%, at 2,051, while the Nasdaq Composite was up 12 points (0.2%) at 5,007.
Arch Coal (NYSE:ACI) was in the doghouse after it said yesterday it would take the 30-day grace period under its indenture agreements with holders to continue discussions with creditors to restructure its balance sheet.
In contrast, Platform Specialty Products (NYSE:PAH) was wanted after unveiling its new chief executive officer.
Former Sigma-Aldrich boss Rakesh Sachdev is replacing Daniel Leever, who, as previously announced, is retiring.
The shares rose 15% on the news.
Wall Street open
The major benchmarks opened sharply higher ahead of today's big interest rate announcement from the Fed.
According to CME Group's arcane calculations, there is an 81.4% chance that the Federal Reserve will hike rates today; we'll know for sure at 2.00pm, ET.
“Janet Yellen’s Federal Reserve is widely expected to announce an interest rate hike after heavy signaling from policy-makers in the lead up to tonight’s meeting. The bigger question mark is over how the Fed pitches the path of future rate hikes via its statement, dot plots and Ms Yellen’s press conference,” suggests Jasper Lawler at spread betting outfit CMC Markets.
The oil price perked up, with West Texas intermediate for January delivery trading at US$37.35 a barrel, up just over a dollar, or 2.9%, on the day.
Despite this, energy plays such as Chesapeake Energy (NYSE:CHK), Southwestern Energy (NYSE:SWN), Baker Hughes (NYSE:RIG) and Noble Energy (NYSE:NBL) dominated the painful end of the list of blue-chip losers.
First Solar (NASDAQ:FSLR), which saw its shares plunge last week, continued on the recovery trail, rising 9.4%.
Among the small caps, Soligenix (OTC:SNGX) soared 29% on positive preliminary results from its Phase 2 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer patients.
In similar vein, Array BioPharma (NASDAQ:ARRY) shot up 25% on a successful Phase 3 clinical trial for its cancer drug binimetinib.
Pre-open
Markets are set to continue yesterday's frenetic advance this morning, ahead of today's crunch announcement from the Fed on interest rates.
The decision will be announced at 2.00pm, ET, with a news conference to follow at 2.30pm, at which Federal Reserve chairperson Janet Yellen will either explain why the FOMC raised rates, or did not.
Before then, a clutch of economic data releases is scheduled including building permits, housing starts and industrial production, all of which are forecast to improve, plus capacity utilization and flash manufacturing Purchasing Managers' Index, which are expected to ease back.
“It will be interesting to see how markets react initially to the Fed’s decision because [sic] with rates currently being between 0 and 0.25%. With a move to 0.5% currently being around 81% priced in, would markets be satisfied with the corridor being moved to 0.25-0.5% or would this be deemed to be a sign of weakness and hesitation from the Fed?” wonders Craig Erlam and forex trading outfit OANDA.
Yesterday's surge in the benchmarks was led by energy stocks, but oil prices have fallen back in screen-based trading on Wednesday morning – Texas light, sweet crude for January delivery was down 0.6% - so this morning's rise may have to be achieved without help from the oil & gas sector.
All the same, spread betting quotes point to a 143 point gain for the Dow Jones industrial average while the S&P 500 is tipped to rise 13 points to around 2,056.