U.S. Stocks Extend Fed-Spurred Rally, Led by Commodity Producers

(Bloomberg) -- U.S. stocks rose for a third day, extending a rally after the Federal Reserve’s decision yesterday to leave interest rates unchanged calmed concerns that central banks might taper efforts to stimulate global growth.

Equities erased losses for the month, led Thursday by companies that benefit from a weaker dollar, including commodity producers, industrial and consumer-staples firms. A gauge of the dollar fell for the third time in four days. Banks lagged amid speculation that persistently low rates will continue to weigh on profits.

The S&P 500 Index added 0.7 percent to 2,177.47 at 10:05 a.m. in New York, back above its average price during the past 50 days for the first time in almost two weeks. The Dow Jones Industrial Average gained 135.13 points, or 0.7 percent, to 18,428.83. The Nasdaq Composite Index rose 0.6 percent after closing at a record yesterday. The gauge erased a 3 percent selloff that followed its last all-time high two weeks ago.

“It’s a bit of a relief rally,” Chris Gaffney, president of world markets at St. Louis-based EverBank, said by phone. “Central banks, their mantra is ’do no wrong,’ right now. They really delivered exactly what markets expected. Now we are onto the next piece of uncertainty, which is third quarter earnings and of course, the election.”

The Fed opted to wait for further evidence of stronger inflation before raising rates, even as the economy showed signs of improving. It also scaled back the number of increases it expects in 2017. Three officials -- the most since December 2014 -- voted against Wednesday’s decision, up from one at the last meeting. Traders are pricing in a nearly 59 percent chance of a hike in December.

The Fed statement soothed markets after worries that central bankers are less willing to boost stimulus measures had earlier this month spurred the biggest selloff since the U.K.’s secession vote in June. The decision came after the Bank of Japan tweaked its monetary policy, giving officials scope to keep loosening while limiting the negative impact on bank earnings. The S&P 500 on Wednesday capped just its second back-to-back advance in September, with its biggest Fed day gain since December.

To the biggest bull on Wall Street, the Fed’s restraint is one more reason that U.S. stocks are on their way to record highs. Thomas Lee, managing partner and co-founder of Fundstrat Global Advisors, has the highest year-end target for the S&P 500 among 19 strategists surveyed by Bloomberg. His forecast level of 2,325 implies a 7.5 percent gain from yesterday’s close.

With the Fed moving off center stage for now, investors will turn their attention to economic data, and another earnings season that gets underway in about three weeks. A report today showed filings for unemployment benefits dropped last week to match the lowest level since April. Separate data showed sales of previously owned homes unexpectedly declined to a six-month low in August, signaling buyers are getting discouraged by a lack of properties to choose from.

To contact the reporters on this story: Aleksandra Gjorgievska in London at agjorgievska@bloomberg.net, Dani Burger in New York at dburger7@bloomberg.net. To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net, John Shipman, Namitha Jagadeesh