US stocks rally as Fed keeps rates unchanged

Eight of ten sectors ended the day in positive territory led by materials and energy sectors

U.S. stocks advanced on Wednesday, 16 March 2016 with the S&P 500 and Dow reaching 2016 highs, after the Federal Reserve kept its key interest rates unchanged and downgraded its forecast for the number of rate increases to two in 2016 from an earlier projection of four. The main indexes gyrated after the initial announcement, paring gains and then rallying, as Fed Chairwoman Janet Yellen discussed the Federal Open Market Committee's decision during the news conference.

The Dow Jones Industrial Average rose 74.23 points, or 0.4%, to 17,325.76. Nasdaq Composite tacked on 35.30 points, or 0.8%, to 4,763.97. The S&P 500 advanced 11.29 points, or 0.6%, to 2,027.22, marking a fresh 2016 closing high.

Gains were led by materials and energy shares, as oil futures climbed on renewed hope for an output freeze. Eight of ten sectors ended the day in positive territory. On the flipside, the heavyweight financial and health care sectors ended in the red. The Dpw gainers were led by Caterpillar.

In the early afternoon, the latest directive from the FOMC provided enough dovish undertones. The FOMC voted 9-1 to leave its benchmark interest rates unchanged. Furthermore, the Fed lowered its target rate projection for 2016 to 0.875% from 1.40% and cut the 2017 outlook from 2.40% to 1.90%. This was essentially in-line with the projections in the fed funds futures market.

During the news conference, Yellen said the global economy is running a bit below expectations and acknowledged softness in exports and business investments, but noted that the global slowdown hasn't affected the Fed's baseline case for the U.S. economy. On inflation, Yellen said the lack of convincing evidence of a pickup in wage growth suggests continued slack in the labor market, but that inflation is gradually expected to move back to 2% over timea level the central bank considers optimal for a healthy economy.

However, the Fed cut its estimate for its preferred measure of inflationthe core personal consumption expenditures to 1.2% down from a prior forecast of 1.6%.

Among stocks under focus, Oracle Corp. gained 3.8% after the software giant posted better-than-expected adjusted quarterly profit late Tuesday. It also said it was adding $10 billion to its existing stock-buyback plan.

Bullion prices scored strong gains on Wednesday, 16 March 2016 at Comex. prices rose in afternoon trading on Wednesday, in the wake of a dovishly perceived FOMC statement that was released at 2:00 p.m. EDT. Gold prices were trading near steady just before the FOMC statement, but then rallied moderately in the immediate aftermath of the statement. April gold was last up $29.20 an ounce or 2.4% at $1,260.30. May silver was up 2.4% at $15.63/oz in electronic trade.

The U.S. dollar index was trading modestly higher just before the FOMC statement was released, but has sold off sharply in afternoon trading, which has given the gold market a further boost.

The Treasury complex slipped to session lows shortly after receiving the hotter-than-expected core CPI data and floated there until the FOMC'c policy statement was released.Treasuries rallied to new session highs following the policy statement, sending the 10-yr yield lower by six basis points to 1.91%.

The U.S. Dollar Index plunged as the greenback surrendered gains against both the yen and euro. The dollar/yen finished lower by 0.5% at 112.57 while the euro/dollar pair rose to 1.1225 (+1.1%).

Among the day's data, core-consumer prices, which exclude volatile food and energy, rose last month and are up 2.3% over the past 12 month. Meanwhile, construction on new houses rose in February to a five-month high, led by the biggest increase in single-family units in nine years. Industrial production decreased 0.5% in February, after hopeful signs of stabilization in January.

Crude Oil futures ended sharply higher on Wednesday, 16 March 2016 at Nymex boosted by a smaller-than-expected weekly climb in U.S. crude stockpiles. Plans for a meeting of major oil producers next month to discuss limiting output and a dovish Federal Reserve statement, which pressured the U.S. dollar, added to gains for crude futures. Hefty declines in gasoline inventories in recent weeks, along with strong demand for the fuel, had helped to boost the demand prospects for crude oil, which is used to make gasoline.

April West Texas Intermediate crude rose $2.12, or 5.8%, to end at $38.46 a barrel on the New York Mercantile Exchange. May Brent crude climbed by $1.59, or 4.1%, to finish at $40.33 a barrel on London's ICE Futures exchange.

Earlier Wednesday, the U.S. Energy Information Administration reported a 1.3 million-barrel rise in crude-oil supplies for the week ended 11 March 2015. That marked a fifth weekly climb in a row, but it was less than the 1.5 million-barrel increase reported by the American Petroleum Institute, and below the rise of 2.7 million barrels expected by market. Gasoline supplies edged down by 700,000 barrels, while distillate stockpiles fell 1.1 million barrels last week. Market had expected for a drop of 3.1 million for gasoline and fall of 1 million for distillates, which include heating oil.

EIA data also showed a weekly fall in total U.S. production of 10,000 barrels a day to 9.068 million barrels a day. Output had peaked at 9.7 million last April.

Oil prices had rallied in recent weeks on hopes that producers would agree to at least freeze output levels, helping to alleviate the global glut of crude. But Iran has said it was unwilling to participate in any such plan until it ramps up production to pre-sanction levels.

Today's trading volume fell beneath the recent average as fewer than 913 million shares changed hands at the NYSE floor.

Tomorrow's data will include weekly initial claims (consensus 266k), March Philadelphia Fed Survey (consensus -1.4), and Q4 Current Account Balance (consensus -$116.0 Billion) each crossing the wires at 8:30 ET. Meanwhile February's Leading Indicators (consensus 0.2%) will be reported at 10:00 ET.

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