The Dow Jones Industrial Average climbed 250 points — more than 1 percent — as gains in UnitedHealth and Caterpillar led the blue-chip index higher. The broad S&P 500 index also rose 1 percent as energy and materials each rose at least 1 percent. The technology-heavy Nasdaq Composite added nearly 1 percent as Alphabet and Netflix each rose at least 2 percent.
Fed Chair Jerome Powell and his colleagues are widely expected to make their fourth and final rate hike of 2018 when they conclude a two-day policy meeting on Wednesday. But it will be what the Fed says in its accompanying statement at 2:00 p.m. ET and what Powell says in his press conference shortly thereafter that will move the market.
Everyone’s talking about the Fed’s decision “because it appears to me that the consensus view is moving toward recession next year and some of it is on the belief that the Fed is raising rates,” said Bruce Bittles, chief investment strategist at Baird. “I’m not convinced we’re going to go into recession next year, but I think we’re going to slow. And if we’re not going to have a recession, I think we’re going to bottom out.”
The Fed is viewed as likely to take the fed funds rate range to 2.25 to 2.50 percent and to remove language in its post-meeting statement that says it will continue with “gradual” rate increases.
While traders see the odds of a quarter-point rate hike above 70 percent, investors will likely scrutinize — and react to — the Fed’s economic outlook for 2019, which is also due to be released today. Complicating matters further for the central bank, President Donald Trump warned Tuesday that it must tread carefully in order not to “make yet another mistake;” strategists expect the Fed Chair to skirt addressing the president’s comments.
“First, I’m concerned that if the Fed does not raise rates, they look to be bending top political will,” Bittles added. “And no. 2, they’d be admitting that economy doesn’t look too great.”
The uptick in U.S. equities came despite a downturn in FedEx stock, which slid more than 10 percent after CEO Richard Smith blamed “bad political choices” for weakness in its overseas business. FedEx lowered its 2019 earnings guidance and reported weakness in its international business, putting the stock on pace for its worst day on Wall Street in more than a decade. The stock is also on track for its worst month since 1978.
Stocks were also supported Wednesday morning on news of a bipartisan Senate plan to avoid a government shutdown. The Senate will introduce a short-term measure to fund the government Wednesday as lawmakers debate whether to fund President Trump’s border wall.
The so-called continuing resoluation would fund the federal government until early February, Senate Majority Leader Mitch McConnell announced. Congress must pass spending bills by midnight Friday to avoid a partial shutdown.
–CNBC’s Sam Meredith contributed reporting.
The SPDR Dow Jones Industrial Average ETF (DIA) was trading at $239.84 per share on Wednesday afternoon, up $2.48 (+1.04%). Year-to-date, DIA has declined -2.24%, versus a -3.05% rise in the benchmark S&P 500 index during the same period.
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