Home Stocks Stocks Rise Ahead of Final Fed Decision of the Year – Wall Street Journal

Stocks Rise Ahead of Final Fed Decision of the Year – Wall Street Journal

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  • Dollar extends declines ahead of Fed meeting
  • Italian stocks, bonds rally on budget deficit compromise
  • Crude oil stabilizes

U.S. stocks moved higher Wednesday ahead of a Federal Reserve decision that is expected to set the tone for interest rates in 2019.

The Dow Jones Industrial Average climbed 131 points, or 0.6%, to 23815 in morning trading. The S&P 500 added 0.8%, after the benchmark index closed little changed Tuesday when a steep fall in oil prices dragged down shares of energy companies. The tech-heavy Nasdaq Composite was up 0.96%.

All three benchmarks are down more than 10% for the quarter and more than 7% in December alone.

Traders stand outside the New York Stock Exchange.


Photo:

Jordan Sirek/Bloomberg News

The Fed is slated to release its interest-rate decision, statement and projections from its December meeting later Wednesday, marking one of the last major scheduled events for investors to monitor in 2018.

The outcome of the meeting and the Fed’s assessment of the economy will be critical for investor sentiment, analysts say. Weakness in rate-sensitive areas of the economy including the housing and auto sectors has stoked fears that tighter financial conditions could further slow the U.S. economy.

Yet signals that the Fed might be less gradual with its approach next year have made some investors worry that growth is cooling more quickly than anticipated, buffeting stocks in recent weeks.

“You need to see some calming words, in terms of downgrading [the Fed’s]] view on the economy and emphasizing the path forward is data-dependent,” said Patrick Spencer, vice chairman of equities at Baird.

With sentiment around markets so negative, “you could see a relief bounce out of this depending on how [Chair Powell] moderates his language,” he added.

The strength of the labor market and broader U.S. economy is expected to keep the central bank on course to raise rates at Wednesday’s meeting for the fourth time this year, though lingering uncertainty about inflation and trade tensions has muddled the Fed’s path moving forward.

President Trump has consistently criticized the central bank for boosting rates, and some analysts are worried that higher borrowing costs will threaten corporate profitability moving forward.

This year, “it really wasn’t trade that caused the big pullbacks in the stock market, it was more worries about the Fed,” said Jeffrey Kleintop, chief global investment strategist at

Charles Schwab
.

Mr. Kleintop pointed to February’s stock-market selloff driven by rising wage growth and inflation jitters, as well as Chairman Jerome Powell’s statement in October that he believed the U.S. economy was “a long way from neutral”, referring to the point at which interest rates are neither spurring nor slowing economic growth.

Stocks rallied last month when Mr. Powell appeared to walk back those comments but have since tumbled anew with analysts anxious about slower-than-expected growth.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.814% Wednesday, according to Tradeweb, from 2.825%. Bond yields fall as prices rise and have slid lately since touching their highest level since May 2011 earlier this fall. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, was down 0.2%, dipping for a third consecutive session.

Analysts have been weighing how the Fed should proceed given muted inflation and a recent tumble in oil prices. U.S. crude slid another 7.3% Tuesday, bringing it nearly 40% below its peak from early October. Prices were slightly higher Wednesday.

Investors say fears about slowing global growth amid trade disruptions will likely continue to swing a range of stocks and commodities moving forward. Negotiations between the U.S. and China regarding their monthslong tariff fight are continuing, but some companies have already reported tepid demand for their products and services.

FedEx

and chip maker

Micron Technology

each fell more than 6% Wednesday after their quarterly results came in weaker than expected.

“Global trade has slowed in recent months and leading indicators point to ongoing deceleration,” FedEx Chief Financial Officer Alan Graf said in the company’s earnings release.

Still, advances in other areas buoyed major indexes.

General Mills

surged 9% after the food company topped earnings expectations. And

Pfizer

shares climbed after the drugmaker and

GlaxoSmithKline

said they would create a consumer health-care giant.

Elsewhere, the Stoxx Europe 600 was up 0.3% in afternoon trading as a budget-deficit agreement buoyed shares of Italian lenders, while markets in Asia closed mixed.

Hong Kong’s Hang Seng inched up 0.2%, while Japan’s Nikkei Stock Average fell 0.6% and stocks in Shanghai and Shenzhen fell over 1%.

Write to Riva Gold at riva.gold@wsj.com

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