Stocks on Wall Street brushed off a muted start and notched modest gains Wednesday after the Federal Reserve reaffirmed that it is prepared to cut interest rates if needed to shield the U.S. economy from trade conflicts or other threats.
In a widely expected move, the central bank’s policymakers decided to leave the Fed’s benchmark interest rate unchanged. Still, by signaling the possibility of lower rates, the Fed reassured investors who have been worried that the U.S.-China trade war could weigh on global economic growth and, by extension, corporate profits.
The reaction to the Fed’s statement was more pronounced in the bond market: The yield on the 10-year Treasury note slid to 2.03%, its lowest level since November 2016. The move signals that bond traders see an increased likelihood that the Fed will lower rates. Investors are betting on at least one interest-rate cut this year, possibly as early as July.
“The story of the last six months is equities are comforted when they believe that the Fed is going to be supportive and going to provide offsets to some of the policy uncertainties that are out there,” said Willie Delwiche, investment strategist at Baird.
The latest gain extended the stock market’s winning streak to a third day. Stocks have rebounded this month after a dismal sell-off in May.
The Standard & Poor’s 500 index rose 8.71 points, or 0.3%, to 2,926.46. The broad market index is within striking range of its all-time high, set April 30.
The Dow Jones industrial average edged up 38.46 points, or 0.1%, to 26,504. The Nasdaq composite rose 33.44 points, or 0.4%, to 7,987.32. The Russell 2000 index of smaller companies rose 5.35 points, or 0.3%, to 1,555.58.
U.S. stock indexes spent much of the day wavering between small gains and losses as investors waited for the Fed to deliver its update on interest rates. The Fed left its key interest rate, which influences many consumer and business loans, unchanged Wednesday in a range of 2.25% to 2.5%.
A day earlier, the head of the European Central Bank said it was ready to cut interest rates and provide additional economic stimulus if necessary.
The biggest issue looming over the market remains the U.S.-China trade war. Stocks opened the week higher and rallied Tuesday after President Trump said he plans to meet with China’s president at the end of the month to discuss trade. The announcement injected some hope into a market that has been volatile because of concerns over the lingering trade dispute and its potential effect on economic growth.
The market has rallied in the past and then dipped again because of seemingly good news on trade talks that did not result in any concrete progress.
Healthcare stocks drove much of the market’s gains Wednesday. Allergan climbed 6.2%. UnitedHealth Group rose 1.8%.
Technology stocks rose; software maker Adobe led the way with a 5.2% gain on solid profit results. Household goods makers also notched gains. Kraft Heinz added 2.3%. Utilities, which tend to rise when bond yields decline, gained ground too. Edison International rose 2.8%.
Financial companies, including banks, were the biggest laggards. The sector is sensitive to the moves in the bond market. Lower bond yields pull down the interest rates that banks charge on loans. Synchrony Financial shares fell 1.7%.
The 10-year Treasury yield has been declining steadily since hitting a high of 3.23% in November. It fell to 2.03% on Wednesday, down from 2.06% late Tuesday.
Benchmark crude oil slipped 0.3% to settle at $53.76 a barrel. Brent crude oil, the international standard, fell 0.5% to close at $61.82 a barrel. Wholesale gasoline rose 0.8% to $1.74 a gallon. Heating oil edged up 0.1% to $1.83 a gallon. Natural gas fell 2.2% to $2.28 per 1,000 cubic feet.
Gold edged down 0.1% to $1,348.80 an ounce. Silver fell 0.2% to $14.96 an ounce. Copper fell 0.8% to $2.68 a pound.