Wall Street keeps modest gains as Fed leaves interest rates unchanged

Investors are distracted by the issue of who will become the new Fed chair

Most investors had expected no change (Reuters)

Wall Street held onto modest gains after the Federal Reserve kept interest rates unchanged, as major equity indexes hovered around record-high levels.

The US central bank pointed to solid US economic growth and a strengthening labour market while downplaying the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

The Fed has raised rates twice this year and currently forecasts one more hike by the end of 2017 as part of a tightening cycle that began in late 2015.

“I don’t think there is anything real surprising out of this,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.

“The comments on the economy were pretty good, talking about solid growth, strong labour market despite the hurricanes. I think those are all good things,” Frederick said. “I would say it pretty close to seals a December rate hike.”

The Dow Jones Industrial Average .DJI rose 58.23 points, or 0.25 percent, to 23,435.47, the S&P 500 .SPX gained 5.28 points, or 0.21 percent, to 2,580.54 and the Nasdaq Composite .IXIC dropped 14.24 points, or 0.21 percent, to 6,713.43.

Energy .SPNY was the best-performing sector, rising 0.8 percent while telecoms .SPLRCL lagged the most.

Investors had all but ruled out a move at the US central bank’s policy meeting this week with attention focused on who will be in charge of monetary policy at the end of Fed Chair Janet Yellen’s first term in February 2018.

President Donald Trump is set to announce his nomination on Thursday. Fed Governor Jerome Powell, who has supported Yellen’s gradual approach to raising rates, is viewed as relatively stock-market friendly and the likely choice.

“The pending announcement regarding the new chair seems to be overshadowing most everything,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Developments at the Fed come as corporate earnings, which have supported the stock market’s run to record highs, are coming in generally above expectations for the third quarter.

With about two-thirds having reported, S&P 500 companies are on track to have earnings growth of 7 percent for the third quarter, up from 5.9 percent growth expected at the start of October, according to Thomson Reuters I/B/E/S.

Reuters