US stocks close mixed as S&P 500 snaps 3-session win streak following Fed decision to keep rates near zero

Members of the Fed’s policymaking committee also indicated the overnight rate could stay near zero through 2023 in order to achieve its 2% inflation goal

After Fed bossJerome Powell revealed in a speech last month that the US central bank will be targeting average inflation of 2%, it is expected that he may add flesh to the monetary policy bones
Federal Reserve

4:05pm: Fed rate decision weighs on stocks

US stocks ended mixed Wednesday, as the Federal Reserve indicated it will keep interest rates near 0% until 2023.

Weakness in tech stocks drove both the S&P 500 and Nasdaq Composite down, with the former snapping a three-session win streak. 

The S&P fell 0.46% to 3,385 and the Nasdaq lost 1.25% to 11.050. But the Dow Jones Industrial Average managed to post a 0.13% gain to 28.032. 

12:15pm: Stocks in the green as traders keep a close eye on the Fed

On Wall Street, stocks turned positive in anticipation of the latest decision from the Federal Reserve. 

The Dow Jones Industrial Average rose 0.8% to 28,204.5 in midday trading and the S&P 500 climbed 0.4% to 3,416. The tech-laded Nasdaq, meanwhile, was stuck in the mud, dropping less than 0.1% to 11,189.4.

Leading the way has been The Goldman Sachs Group Inc (NYSE:GS), which jumped 2.2% to $202.48 and Walgreens Boots Alliance Inc (NASDAQ:WBA), which got a 4.5% boost to $36.85.

In the UK, the FTSE 100 dipped slightly on Tuesday but held above the 6,000 mark, shedding 0.4% to 6,081.5 points. The value of the pound rose swiftly against a weaker dollar, MarketWatch reported, which hampers the FTSE index.

The FTSE 250 was very nearly flat, gaining 9 points, less than 0.1%, to 17,824.5.

Among the laggards was Rolls-Royce Holdings PLC (LSE:RR.L), which slowed 5.4% to £192.35.

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9.45am: Wall Street starts higher

US benchmarks opened higher but without huge fanfare on Wednesday as the market awaits the Federal Reserve policy update.

Shortly after the New York bell, the Dow Jones Industrial Average added around 48 points at 28,044. The S&P 500 gained nearly nine at 3,410, while the tech heavy Nasdaq exchange continued its journey north, up 30 points at 11,220.

Traders are weighing up what the US central bank can deliver in coming months, excited by the potential for more stimulus measures and no interest rate hikes for the foreseeable.

Reportedly, the Fed is to signal that its interest rate policy will remain unchanged and near zero for another three years.

Analyst Craig Erlam at Forex group Oanda doesn’t expect any loud noises coming from chairman Powell later though he expects some colour on the changes to the policy framework announced last month at Jackson Hole.

"What exactly does this mean for monetary policy? Can we expect more asset purchases? Negative interest rates? Yield curve control? At what stage should we factor in rate increases?" he said.

"Inflationary pressures have risen more than expected in recent months and the economy is bouncing back better than expected, as evidenced by the OECD's new economic projections. The US is now expected to contract by 3.8% this year, an improvement on the -7.3% projection in June. Against this backdrop, I can't imagine the Fed will be keen to make overly bold promises."

9.00am: Retail sales weaken

US stocks were still expected to open higher on Wednesday even after data showed consumer spending appeared to slow in August.

Core retail sales fell by 0.1% last month after a downwardly revised 0.9% increase in July, the Commerce Department said. Economists had forecast core retail sales rising 0.5% in August.

The number, which excludes automobiles, gasoline, building materials and food services, was previously reported to have advanced 1.4% in July.

Overall retail sales increased by 0.6% in August, however, in part thanks to higher gasoline price.

A $600 weekly unemployment subsidy expired in July. Economists estimated that the reduced supplement cut income by about $70 billion in August. Government money was credited for the sharp turnaround in economic activity that started in May

US consumer spending suffered a record collapse in the second quarter. The pullback in core retail sales in August, if sustained, would set consumer spending for a slower growth path in the fourth quarter.

7.35am: Cautious start expected

US stock markets are seen opening cautiously higher on Wednesday, as investors await the outcome of the latest Federal Reserve monetary policy meeting.

The Dow Jones Industrials Average, S&P 500 and Nasdaq Composite are currently forecast to rise by 0.5%, 0.6% and 0.7%, respectively.

On Wednesday, the Dow closed just 2.27 points, or 0.01% higher at 27,995, while the broader S&P 500 index added 0.5%, and the tech-laden Nasdaq Composite gained 1.2% as the sector recovered after recent falls.

After Fed head Jerome Powell revealed in a speech last month that the US central bank will be targeting average inflation of 2%, it is expected that he may add flesh to the monetary policy bones in the post-FOMC meeting commentary later.

As the inflation target effectively will allow for inflation overshoot after a period of falling short, which it has already, market analyst Craig Erlam at Oanda said this had just given investors the go-ahead to expect an even more prolonged period of zero interest rates and perhaps even more stimulus.

“While we're not anticipating more easing today, there is an expectation that the Fed will provide further colour on the changes announced last month,” Erlam said.

"While not many market followers are naive enough to expect answers to all their policy questions today, he said the Fed “will need to display a dovish shift from the last meeting, reflecting the commitment to the new framework. And more detail may be demanded regarding what the change means in reality. I wonder whether the Fed is positioned to disappoint.”

Gold prices, which have been holding below US$2,000 for the last month, are worth watching on the back of the Fed policy announcement, as well as the dollar, of course, Erlam added.

“The dollar has been under pressure since March and has recent shown signs of pushing for a correction,” he said. "With both of these trades showing signs of fatigue, a failure by the Fed to meet or surpass expectations could get quite a reaction.”

Five things to watch for on Wednesday:

  • US retail sales data for August, due at 8.30am ET, with expectations for a reading of 1.0% compared with July’s figures of 1.2%
  • Delivery firm FedEx Corp FDX.N jumped 10% in premarket trading after reporting a bigger-than-expected quarterly profit
  • Apple Inc rose 0.7%,s it rolled out a new virtual fitness service and a bundle of all its subscriptions, Apple One
  • Other tech-related stocks including Alphabet Inc, Amazon.com Inc, and Microsoft Corp also gained pre-market
  • Two Boeing 737 MAX crashes that killed all 346 passengers and crew aboard were the “horrific culmination” of failures by the planemaker and Federal Aviation Administration (FAA) has concluded

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