Saturday, September 26, 2020
Sept. 26, 2020

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U.S. stocks tick up ahead of Federal Reserve’s rate decision

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NEW YORK — Stocks are ticking higher on Wall Street Wednesday, ahead of a decision on interest-rate policy by the Federal Reserve scheduled for the afternoon.

The S&P 500 was up 0.3 percent in afternoon trading, on pace for its third straight gain following its worst weekly slump since June. The Dow Jones Industrial Average was up 210 points, or 0.8 percent, at 28,202, as of 1:04 p.m. Eastern time, and the Nasdaq composite was down 0.2 percent.

One of the primary reasons Wall Street has roared back to record heights despite the still-raging pandemic is the immense aid the Federal Reserve is providing. The central bank has cut short-term rates to nearly zero and is buying all kinds of bonds to support markets. Fed Chair Jerome Powell outlined a new strategy last month where it may keep providing support even if inflation rises above its target level.

Investors aren’t expecting anything major from this afternoon’s announcement by the Fed. They are looking for short-term rates to stay at their record low, though the central bank could announce more details around its change in strategy.

“Don’t fear the Federal Reserve, and don’t fear them making a policy mistake that hurts economic expansion any time in the next three years,” said Mike Zigmont, director of trading and research at Harvest Volatility Management.

Investors may be relying too much on the Fed to come to the market’s rescue if it stumbles again though, Zigmont said.

“If the Fed says we won’t ruin the party that’s not same as saying they’re going to juice the party up even more,” Zigmont said.

The Fed will also issue its quarterly economic projections, which will for the first time include estimates for growth, unemployment and the Fed’s benchmark interest rate for 2023.

FedEx jumped 6.1 percent for one of the biggest gains in the S&P 500 after reporting stronger profit growth for the latest quarter than analysts expected. The boom in online shopping caused by the coronavirus pandemic has helped its revenue climb. The company said that the growth it expected to see over the next three to five years has happened in just three to five months.

The day’s gains were widespread, with four out of five stocks in the S&P 500 higher. Energy stocks had some of the biggest gains after benchmark U.S. crude oil climbed 4.9 percent to $40.17 and Brent crude, the international standard, rose 4.1 percent to $42.19. Exxon Mobil rose 3.6 percent, and oilfield services provider Schlumberger added 5.3 percent.

Smaller stocks were climbing more than the rest of the market, and the Russell 2000 index of small-caps was up 1.7 percent.

Wall Street has resumed its upward lift this week following a tumultuous two-week stretch where high-flying technology stocks abruptly lost their momentum. Big Tech stocks soared through much of the pandemic as investors increasingly bet their strong growth will continue as more of everyday life shifts online.

The gains were so powerful and consistent for these superstar stocks that critics warned they had become too expensive, and they tumbled sharply after carrying the S&P 500 to a record on Sept. 2. But they’ve stabilized this week. Their strong growth would continue to look very attractive to investors in a slow-growth economy if the Fed does indeed keep interest rates low for years as markets expect.

The economy has made some improvements since the worst of the lockdowns in the spring, but the budding recovery has been fitful. Investors say the economy and markets still crucially need all the support they can get from the Federal Reserve, as well as Congress.

“If coronavirus disappears then we’re dealing with normal risks,” Zigmont said. “If it resurges, all the usual things that investors take into account, all the projections for the next two years go out the window.”

Federal unemployment benefits and other Congressional aid for the economy approved earlier this year have expired, but partisan disagreements on Capitol Hill have prevented a renewal.

A report on Wednesday showed that U.S. retail sales strengthened last month, but less than economists expected. At least part of the shortfall is likely because unemployed workers are no longer getting the $600 boost to their weekly checks that used to come from the federal government.

Treasury yields dipped following the retail sales report, and the yield on the 10-year Treasury dropped to 0.67 percent from 0.68 percent late Tuesday.

Earlier, a separate report from the Organization for Economic Cooperation and Development had said the global economy is not doing as badly as previously expected, especially in the United States and China. It projected the world’s economy will shrink by 4.5 percent this year, less than the 6 percent plunge it had predicted in June.

Stock markets around the world were mostly subdued.

In Europe, the German DAX rose 0.3 percent and the French CAC 40 rose 0.1 percent. The FTSE 100 in London rose 0.8 percent.

In Asia, Japan’s Nikkei 225 rose 0.1 percent, but other markets were weaker. Hong Kong’s Hang Seng was virtually flat, South Korea’s Kospi fell 0.3 percent, and stocks in Shanghai lost 0.4 percent.

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