The Dow and broader U.S. stock market notched fresh gains on Tuesday, as the Federal Reserve kicked off its two-day policy meeting in Washington. Policymakers are expected to maintain their dovish bias on interest rates as they grapple with a slowing domestic economy and a synchronized downturn globally.
Dow Clears 26,000; S&P 500, Nasdaq Rally
All of Wall Street’s major indexes reported gains Tuesday, reflecting a strong pre-market session for Dow futures. The Dow Jones Industrial Average rose by as much as 150 points before paring gains later in the morning. It was last up 102 points, or 0.4%, at 26,016.52.
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The broad S&P 500 Index of large-cap stocks gained 0.3% to 2,841.40, where it was tracking more than five-month highs. Eight of 11 primary sectors reported gains, led by a 0.8% rally for consumer discretionary shares. Materials also outperformed the benchmark, rising 0.7%.
Meanwhile, the technology-focused Nasdaq Composite Index rose 0.2% to 7,730.42, also a five-month high.
A measure of implied volatility known as the CBOE VIX drifted back toward five-and-half-month lows on Tuesday. VIX, also known as the “fear index,” bottomed at 12.39 on a scale of 1-100 where 20-25 represents the historical mean. It last traded at 12.87, having declined by 1.6%.
Federal Reserve Meeting Underway
The Federal Reserve’s policy-setting board kicked off its two-day meeting in Washington Tuesday against a backdrop of uncertainty on trade and economic issues. The official policy statement due Wednesday is expected to maintain the Fed’s dovish stance on interest rates that was adopted in the wake of a brutal December selloff in U.S. and global stocks.
In light of those developments, Fed officials said they would be “patient” in deciding when to adjust interest rates. Traders took this to mean that no additional rate hikes are expected this year. This is further reflected by Fed Fund futures prices, which imply a 98.7% chance of no change to the federal funds rate on Wednesday. The 1.3% reflects a very slim chance that the Fed will lower interest rates.
A long-term view of Fed Fund futures prices suggests there is no chance of a rate hike this year, but the prospect of a rate cut grows in the latter half of 2019.
The central bank’s expected path of interest rates will be revealed Wednesday in revised quarterly projections. The projection materials will include revised estimates for GDP, inflation and unemployment, as well as the Fed’s infamous “dot-plot” chart of rate expectations.