Stocks rally on oil turn as Fed vows rate patience

17.12.2014 23:23
Kate Gibson |

U.S. stocks surged on Wednesday, with the Dow marking its best session of the year, as investors celebrated a rally in the energy sector and the Federal Reserve’s pledge to be patient in raising interest rates.

after the Federal Reserve retained the phrase “considerable time” in its policy statement, and also introduced another word, “patient,” as the central bank readies to raise interest rates next year.


The subtle change in wording could be a “compromise between keeping it in there and pulling it out completely, or that’s my reading of the tea leaves,” said Tom Kersting, principal and fixed income investment strategist for Edward Jones.


“The Fed will continue to be supportive of the economy, which is ultimately good for equity markets, at least in the short term. Longer term, equities are driven by earnings growth, and an economy that continues to improve will help earnings growth,” Kersting said.


Addressing a televised news conference, Fed Chair Janet Yellen said the new language was not a change in policy, and that a rate increase was unlikely for the next several meetings.


“The equity markets are celebrating this as less hawkish than anticipated,” said Art Hogan, chief market strategist at Wunderlich Securities.


“If we walked in today concerned about anything other than the price of a barrel of oil and Russia imploding, it was a more hawkish Fed statement, and that didn’t happen,” Hogan added.


“It’s hard to separate what’s going on with the Fed and what’s going on globally, the issues with energy and the Russian currency crisis. The information that the Fed provided today doesn’t really change much. It sounds like they are still thinking sometime in the middle of next year,” RogerBayston, senior vice president of Franklin Templeton’s fixed-income group.


Energy producers led Wall Street gains, and the price of oil turned higher.


“West Texas has stabilized a bit here. Maybe that’s enough to stop the precipitous decline in oil shares, as that sector was completely washed out,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.


FedEx dropped after the shipper’ posted disappointing second-quarter earnings; competitor United Parcel Service also fell.


The cost of living declined in November as energy prices fell, with the Labor Department’s consumer price index falling 0.3 percent, the largest drop since 2008. Low inflation gives the Fed more reign to take its time in increasing rates.


The core rate, which excludes food and energy, climbed at a slower pace than last month.


DJIA Dow Jones Industrial Average 17356.87
288.00 1.69%
S&P 500 S&P 500 Index 2012.89
40.15 2.04%
NASDAQ Nasdaq Composite Index 4644.31
96.48 2.12%


After a 320-point jump, the Dow Jones Industrial Average rose 288 points, or 1.7 percent, to 17,356.87, with Chevron leading gains that included all 30 components.


The S&P 500 added 40.15 points, or 2 percent, to 2,012.89, with energy pacing gains among its 10 major sectors, all of which advanced.


“It’s too soon to say whether this is a dead cat bounce or whether it’ll go lower, as nothing has changed. It may just be a pause, and the energy sector is in an oversold rebound,” said Luschini.


The Nasdaq gained 96.48 points, or 2.1 percent, to 4,644.31.


For every share falling, nearly seven rose on the New York Stock Exchange, where 583 million shares traded as of 2:40 p.m. Eastern. Composite volume neared 3.3 billion.


The CBOE Volatility Index, a measure of investor uncertainty, fell 18 percent to 19.32.

Traders work on the floor of the New York Stock Exchange, Oct. 29, 2014.

On the New York Mercantile Exchange, West Texas Intermediate for January delivery closed 54 cents higher at $56.47 a barrel. Gold futures for February added 20 cents to $1,194.50 an ounce.


Russia repeated that it would maintain its crude production in 2015, echoing OPEC’s approach of trying to maintain market share.


Russia on Wednesday again attempted to halt a rout in the ruble, which climbed after the Finance Ministry said it had purchased the currency, with the nation veering towards recession as oil prices fall and the ruble tanks, and the U.S. readying new sanctions over the Ukraine conflict.


The U.S. dollar gained against the currencies of major U.S. trading partners; the yield on the 10-year Treasury note used to figure mortgage rates and other consumer loans rose 8 basis points to 2.1446 percent.


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