U.S. Equities Advance Before Key Central-Bank Policy Decisions

  • Housing starts add to list of weaker-than-forecast data
  • Investors in ‘wait-and-see mode’ before Fed, BOJ statements

U.S. stocks rose amid speculation central banks will maintain efforts to support growth before Wednesday’s closely watched policy decisions from the Federal Reserve and Bank of Japan.

Equities jumped out of the gate for a second day, though the early gains have lost some momentum. A rally Monday faded in afternoon trading to leave shares little changed for the session. Consumer staples and drugmakers paced Tuesday’s advance, with biotechnology shares rallying after Allergan Plc agreed to buy Tobira Therapeutics Inc. for as much as $1.7 billion. Energy producers slipped for a third day as oil swung between gains and losses.

The S&P 500 Index added 0.3 percent to 2,144.98 at 10:53 a.m. in New York. The Dow Jones Industrial Average gained 53.69 points, or 0.3 percent, to 18,216.45, cutting an earlier climb by half. The Nasdaq Composite Index increased 0.2 percent. A Goldman Sachs Group Inc. basket of most-shorted shares climbed for a second session after its best day in six weeks yesterday.

“People are waiting for the Fed and the Bank of Japan,” Jim Davis, regional investment manager for The Private Client Group of U.S. Bank, said by phone. “The overall market is positioned for the Fed not to do anything. We’ve had a reset and we’re back to where we were pre-Brexit. Investors are seeking affirmation that central banks are going to continue to be somewhat friendly.”

Stocks have struggled for direction since Sept. 9, when worries that central bankers may be less committed to further stimulus efforts spurred the biggest slump in more than two months, ending the summer’s calm. Amid swings between gains and losses as investors assessed economic releases and comments by Fed officials, the S&P 500 eked out an advance of 0.5 percent last week. The benchmark is trading at 18.3 times estimated earnings, its highest since 2002.

A report today showed new-home construction fell more than projected in August, representing a pause after a spell of strong gains. Permits, a proxy for future construction, unexpectedly slipped on fewer applications for apartment projects. It’s the last piece of significant data before the Fed announces its rate decision and Chair Janet Yellen holds a press conference tomorrow afternoon. The Bank of Japan will also undertake a review of its monetary policy, with its outcome due before Wednesday’s Fed statement.

The housing starts data added to a recent slew of weaker-than-forecast reports that has lowered trader odds of higher borrowing costs this month to 22 percent, from more than 40 percent in late August. A Bloomberg gauge tracking the degree to which data miss or exceed economists’ estimates is hovering near a two-month low.

“It really is only about central banks,” said Christian Gattiker, the Zurich-based head of research at Julius Baer Group Ltd., which manages about 284 billion Swiss francs ($290 billion). “We’re generally in a bit of wait-and-see mode and it will depend on how much we get in terms of direction. A hike this month is priced out, but the market is waiting for guidance whether it’s going to happen in December or next year.”

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