U.S. Stocks Advance Amid Fed Rate Speculation, Commodities Gain

September 19, 2016 11:30 AM
U.S. Stocks Advance Amid Fed Rate Speculation, Commodities Gain

U.S. stocks rose amid gains in commodities prices and speculation that mixed economic data will prompt the Federal Reserve to hold interest rates steady this week.

The S&P 500 Index climbed 0.4 percent to 2,147.44 at 9:33 a.m. in New York. A rebound in global stocks today was helped as oil and commodities recovered from Friday’s losses.

“It’s becoming bad news is good news again as we had some weak economic numbers last week, so the chances of a rate hike seem to be diminishing in September and they’ll probably push it out to December,” said Kully Samra, a London-based client manager at Charles Schwab Corp., which has $2.7 trillion in client assets. “We continue to be positive on the U.S. even if valuations are stretched because they can remain stretched in a bull market. I see the recent mixed economic data as a soft patch, not a persisting trend.”

Volatility has resurfaced as central banks signaled they are rethinking the approach to the monetary stimulus. The S&P 500 rose 0.5 percent in the five days through Friday, bouncing after its worst week since February. Still, the benchmark trades at about 18.2 times estimated earnings, the highest since 2009, and for stocks to hit forecasts for next year, they would have to increase profits by 13 percent, something that hasn’t happened since 2011.

A report on August housing starts tomorrow is the last bit of significant data to offer an indication on the strength of U.S. growth before the Fed announces its rate decision on Wednesday. Reports last week offered contrasting evidence of the state of the economy: the cost of living rose more in August than projected, while consumer confidence this month held at the lowest level since April. A gauge tracking the degree to which data miss or exceed economists’ estimates is near a two-month low.

Following last week’s releases, the odds for a September rate increase have fallen to 20 percent from 30 percent less than two weeks ago, with December the first month with more than even odds of a hike. Economists surveyed by Bloomberg expect the Fed to keep rates unchanged, while strengthening guidance about its intentions to raise borrowing costs soon. The Bank of Japan will also undertake a review of its monetary policy this week.

“The Fed will not raise interest rates this week, but they will be pretty aggressive in saying a rate increase is coming,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $110 billion. “There’s a chance for volatility to remain, simply because I don’t think the Fed is going to clear up any uncertainty about the path of interest rates and in an election where it looks like it’s going to be a very tough fight for both candidates.” 


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