Stocks gain moderately, led by high-dividend sectors

Josh Kim
September 23, 2016

The Fed didn't raise key interest rates on Wednesday.

Energy companies followed oil prices higher.

The Dow Jones industrial average added 50 points, or 0.3 percent, to 18,180 as of noon Eastern time.

The S&P 500 was up 8.06 points, or 0.38 percent, at 2,147.82. The tech-laden Nasdaq Composite Index closed at 5,295.18 gaining 1%.

"Thanks to the BoJ's commitment to continue monetary stimulus for a lengthy period and the Fed's decision to hold, the $A has bounced above 76 U.S. cents again". Utilities and phone companies, which pay big dividends and are more attractive when interest rates are low, made substantial gains. And estimates of future growth - along with the outlook for interest rates - have steadily tracked lower.

Nowhere has a more ultra-easy monetary policy than Japan, where the central bank said on Wednesday it would persist with its massive asset-buying and negative rates, while at the same time shifting its policy framework to one more suited to a long battle against deflation.

We asked two scholars and former Fed officials - Mark Sniderman, an executive in residence at Case Western Reserve University who was chief policy officer at the Cleveland branch of the central bank, and Emory University's Sheila Tschinkel, who was director of research in Atlanta - whether it was the right call.

The Fed kept its target rate for overnight lending between banks in a range of 0.25 per cent to 0.50 per cent, where it has been since it hiked rates in December for the first time in almost a decade. That surprised investors, and stocks gyrated for a few days before settling down to tiny moves this week.

At the end of one of its most anticipated meetings for some time, the central bank's policymakers said the economy continued to improve and the argument for a rise was strengthening but more evidence of sustained progress was needed.

Fed Chair Janet Yellen, speaking after the central bank's latest policy statement, said United States growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.

Investors picked up shares of Globe Telecom, which rose by 4.48 percent while MPI also gained 3.5 percent. The Energy Information Administration said oil inventories dropped by 6.2 million barrels and gasoline inventories decreased by 2.5 million barrels last week.

From a broader perspective, however, as long as the next rate hike occurs soon, the exact timing doesn't matter very much.

Benchmark U.S. crude added $1.09, or 2.5 percent, to $45.14 a barrel in NY. Brent crude, used to price global oils, rose 64 cents, or 1.4 percent, to $46.52 a barrel in London.

BONDS, CURRENCIES: Bond prices fell.

The BOJ said on Wednesday it will seek to guide the 10-year JGB yield around zero percent in an unprecedented move but investors are left wondering exactly where and how the BOJ would be able to exert control on the bond yield.

ADOBE JUMPS: Software maker Adobe Systems climbed after it raised its forecasts for the year. Its stock climbed $7.23, or 7.2 percent, to $107.85.

Telecommunications stocks also rose more than the rest of the market.

So why would a central bank consider cutting rates after downgrading all its important forecasts (with the exception of employment growth which now seems to be at close to being full)?

While hailing a pickup in activity since the sluggish first half of the year, the United States central bank showed uncertainty about some persistent weak signs in the economy, and cut its 2016 growth forecast to 1.8 percent, down from 2.0 percent in June.

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