Major U.S. stock indexes rallied Wednesday after the Federal Reserve left interest rates unchanged at its March policy meeting and signaled continued moderate expansion in the U.S. economy in coming quarters. Policymakers also apparently eliminated their bias towards higher interest rates with a key rhetorical tweak.
The Dow Jones industrial average climbed 159.42 points, or 1.3%, to 12,447.52. The broader Standard & Poor's 500 index advanced 24.1 points, or 1.71%, to 1,435.04. The tech-heavy Nasdaq composite added 47.71 points, or 1.98%, to 2,455.92.
Trading breadth on the NYSE was heavily positive, with 27 issues advaning for each 6 issues declining. Nasdaq breadth was 23-8
positive. Stock gains were accompanied by heavier volume, which mostly came in late trading.
The major item on Wednesday's economic calendar was the conclusion to the Federal Reserve's two-day policy meeting, where the central bank left the Fed funds target rate unchanged at 5.25%. Policymakers said that while recent indicators "have been mixed and the adjustment in the housing sector is ongoing ... the economy seems likely to continue to expand at a moderate pace over coming quarters".
As for the inflation outlook, the Fed's communique noted that "recent readings on core inflation have been somewhat elevated ... in these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected".
The market may have seized on the Fed's replacement of the phrase "additional policy firming" with "policy adjustments" -- implying that the central bank has backed away from its bias toward tightening interest rates.
"The mix of the statement has something for everyone" says econmic research outfit Action Economics. "This is more of a 'tightening-lite' statement from the Fed."
Morgan Stanley economist David Greenlaw doubts the FOMC "was looking to signal a 'Bernanke put' to holders of risky assets", reports Standard & Poor's MarketScope. But he said "that is how some appear to be interpreting the message ... admittedly, all of this leaves us a bit confused regarding the Fed's policy message".
The Mortgage Bankers Assn. said Wednesday its seasonally adjusted index of mortgage application activity for the week ended Mar. 16 fell 2.7% to 672.1, the first decline in four weeks. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.06%, up 0.03 percentage point from the previous week.
Also, the ABC News/Washington Post Consumer Comfort index fell to -5 in the week ended March 18 from +2 the previous week in what marked one of the biggest one-week drops on record for the index. Higher gasoline prices were blamed for some of the fall.
Among companies in focus Wednesday, Oracle (ORCL) was higher after the software giant posted third quarter earnings per share of 25 cents, vs. 19 cents one year earlier, on a 27% sales rise.
Package-delivery concern FedEx (FDX) was lower after it posted third quarter EPS of $1.35, vs. $1.38 one year earlier, despite a 7.4% revenue. The company cited the impact from the slowing economic environment, lower fuel surcharges, and severe winter storms in the U.S., and forecast fourth-quarter EPS of between $1.93 to $2.08.
News of a potential mega-merger in the global banking industry also captured investor attention. Barclays' (BCS) talks to buy ABN AMRO (ABN) were forcing banks worldwide to evaluate their next moves, according to a Wall Street Journal report, with Citigroup (C) and HSBC Holdings (HBC) seen as potential rival bidders.
May West Texas Intermediate crude rose 36 cents to $59.61 per barrel Wednesday, even though
Dept. of Energy data showed crude oil stocks rose a greater-than-expected 4 million barrels per day in the week ended Mar. 16. The build put crude above the upper end of the average range for this time of year.
European stock indexes ended mixed Wednesday. In London, the FTSE 100 index gained 36.5 points, or 0.59%, to 6,256.8. France's CAC 40 index shed 1.09 points, or 0.02%, to 5,502.18. In Frankfurt, the DAX index rose 11.77 points, or 0.18%, to 6,712.06.
Asian markets also finished mixed. Hong Kong's Hang Seng index rose 159.51 points, or 0.82%, to 19,516.41. Korea's KOPSI index dipped 1.32 points, or 0.09%, to 1,442.85.
Japanese markets were closed Wednesday for the Spring Equinox holiday.
Treasury issues climbed in price Wednesday, recovering sharply from early weakness, as the Fed left rates unchanged and appeared to soften the tightening bias in its statement by referring to "future policy adjustments" instead of "any additional firming that may be needed" as they had in the past. Market actions show traders are looking for the Fed's next move to be a rate cut.
The 10-year Treasury note rose 06/32 in price to 100-26/32 for a yield of 4.530%.