Many investors were betting on a less-hawkish Federal Open Market Committee statement, especially after the weaker-than-expected inflation data.
U.S. consumer prices fell in November the most in six years, a bonanza stemming from plunging oil prices that also boosted inflation-adjusted worker pay. An inflation rate below the Fed’s target of 2% will allow the central bank to keep key interest rates low for longer in order to stimulate the economy.
The S&P 500 SPX, +1.04% advanced, but still remains below 2,000. The energy sector jumped by 4%, as oil prices reversed earlier losses. Materials were the second-best performers, another of the nine of 10 main sectors that were trading higher.
The Dow Jones Industrial Average DJIA, +0.86% jumped triple digits, with Chevron Corp. CVX, +3.71% and Exxon Mobil Corp. XOM, +3.25% leading the gains. The Nasdaq Composite COMP, +0.78% also added to gains.
Somewhat calmer currency and commodity markets might have contributed to more optimistic sentiment on Wall Street. On Wednesday, the ruble strengthened after Russia’s central bank announced measures to shore up the country’s banks. Meanwhile, oil prices were sharply higher even after data showed crude inventories declined by a smaller-than-expected 800,000 barrels. U.S. crude futures CLF5, +3.45% rose to $56.52 a barrel, and Brent crude LCOG5, +3.92% is trading above $60 a barrel.
Chris Gaffney, senior market strategist at EverBank Wealth Management, noted that currency moves tend to amplify volatility in other sectors, as currency crises normally create liquidity crises, which results in all assets being sold.
“If the Fed keeps ‘considerable time’ phrase and refers to global economy concerns in the statement, that would certainly be dovish and support equity markets,” Gaffney added.
Markets expect a “less-than-hawkish Fed” later, said Brenda Kelly, chief market strategist with IG, said in emailed comments.
“Despite the abject aversion to risk at the beginning of the week, U.S. futures have found buyers – technicals have helped somewhat and given that the lows of mid-October remain untested thus far has aided the new-found trader confidence,” she said.
The Fed, inflation: The consumer price index declined by a seasonally adjusted 0.3% in November, the largest drop since December 2008. Economists polled by MarketWatch had expected the CPI to drop 0.1% because of a sharp reduction in the cost of oil. Energy prices retreated for the fifth straight month, led by a 6.6% decrease in the gasoline index, the Labor Department said Wednesday.
