Stocks close higher after Fed holds interest rates steady

U.S. stocks rose Wednesday after the Federal Reserve left interest rates unchanged and forecast it will raise rates more gradually than it had envisioned late last year.

The market had been lower before the Fed released its statement, which highlighted strength in hiring and housing, but weakness in exports and concerns over slower global economic growth. The Fed now expects to raise interest rates two times this year instead of four.

Jeremy Zirin, chief equity strategist for UBS Wealth Management Americas, said the Fed and the markets now seem to have the same view on interest rate increases, and that means the market may be a little less volatile than it has been recently.

“It probably eases investors' minds that we're unlikely to see a rate hike in April, and it probably takes June off the table,” he said.

Lower rates help boost economic growth by reducing borrowing costs and the risk associated with expanding businesses or starting new ones. Lower rates also make stocks look more attractive to investors.

Stocks are now on track for their fifth straight week of gains. The Dow Jones industrial average and the Standard & Poor's 500 index closed at their highest levels since the first trading day of the year.

The Dow rose 74.23 points, or 0.4%, to 17,325.76. The S&P 500 index climbed 11.29 points, or 0.6%, to 2,027.22. The Nasdaq composite index jumped 35.30 points, or 0.8%, to 4,763.97.

Oil prices rose nearly 6% and pushed energy shares sharply higher. Crude jumped after a group of major energy-producing nations said they would hold more talks next month about a freeze in oil output levels. If there is a deal — which is far from a sure thing — that could help relieve a global glut that has depressed oil prices. In the U.S., oil inventories grew, but not as much as investors expected.

Benchmark U.S. crude rose $2.12 to close at $38.46 a barrel. Brent crude, the benchmark for international oils, rose $1.59 to $40.33 a barrel.

Energy companies were the top-performing stock sector. Devon Energy climbed 8.8%, to $26.22. Southwestern Energy leaped 9.3% to $7.90 and Oneok rose 6.5% to $29.51.

After the Fed's decision, bond prices rose sharply and the yield on the 10-year Treasury note fell to 1.91% from 1.97%. The euro jumped to $1.1217 from $1.1107 late Tuesday. The dollar fell to 112.55 yen from 113.10 yen.

Mining and materials companies and technology stocks, which would all benefit from a weaker dollar, also traded higher. Newmont Mining rose 4.5% to $27.55 and Alcoa jumped 6.3% to $9.74. Apple went up 1.3% to $105.97 and Microsoft gained 1.4% to $54.35.

Metals prices were little changed on the day, as they closed earlier in the afternoon. Gold slid $1.20 to $1,229.80 an ounce. Silver slipped 4 cents to $15.22 an ounce. Copper was unchanged at $2.23 a pound.

Peabody Energy, the largest coal mining company in the U.S., saw its shares plunge after it said it was delaying an interest payment and may have to file for Chapter 11 bankruptcy protection. The stock sank 45.4% to $2.19.

Stocks have been rising in recent weeks on mounting evidence that the U.S. economy remains in good shape overall despite the shaky state of other major economies. That trend continued Wednesday as the Labor Department said core inflation, or inflation that leaves out energy and food prices, continued to rise. It's up 2.3% over the last year, its biggest 12-month gain since May 2012. Overall inflation slipped in February because of lower gas prices and is up just 1% in the last year.

The Fed has been looking closely at inflation as it considers raising interest rates. Although one of the Fed's main goals is to prevent runaway inflation, the central bank wants to see inflation rise more than it has in recent years to be sure the economy is healthy enough to handle higher rates.

Separate reports showed that construction of new homes continued to grow in February, but applications were weak again, a sign of future trouble. Meanwhile U.S. factories made more machinery, appliances and computer in February. It's the second straight monthly increase and a sign that manufacturing is improving.

In other energy trading, wholesale gasoline rose 1 cent to $1.42 a gallon. Heating oil rose 5 cents, or 4.5%, to $1.23 a gallon. Natural gas rose 2 cents to $1.87 per 1,000 cubic feet.

Germany's DAX gained 0.5% and Britain's FTSE 100 added 0.6%. France's CAC 40 fell 0.2%. Asian stocks were also mixed. Japan's benchmark Nikkei 225 slipped 0.8% and South Korea's Kospi added 0.3%. Hong Kong's Hang Seng lost 0.2%. The Shanghai Composite index rose 0.2%.

Copyright © 2016, Los Angeles Times

UPDATES

2:20 p.m.: This article was updated with additional details.

1:16 p.m.: This article was updated with closing prices.

This article was originally published at 8:24 a.m.

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