By Anora Mahmudova and Barbara Kollmeyer, MarketWatch
NEW YORK (MarketWatch) -- The U .S. equity market rallied in
early afternoon Tuesday, driven by big gains in energy sector
stocks, as investors turned modestly optimistic ahead of the key
Federal Reserve meeting.
The Federal Open Market Committee's two-day policy meeting,
which began Tuesday morning, may offer the clearest insight yet as
to wether the U.S. central bank will dial up rates sooner than
expected.
Recent worries that policy makers may signal that they will
begin raising key interest rates as early as the first quarter of
next year contributed to a modest pullback this month. However, the
Federal Reserve may keep the words "considerable time" in its
policy statement, but qualify them, the Wall Street Journal's chief
economics correspondent Jon Hilsenrath said Tuesday in a webcast
previewing the central bank's two-day policy meeting. Also read:
Eight keys to Fed's September meeting
The S&P 500 (SPX) gained 14 points, or 0.7%, to 1,998.80.
All ten main sectors posted gains, while energy sector stocks
rallied more than 2%.
The Dow Jones Industrial Average (DJI) rose 108 points, or 0.6%,
to 17,133.52. The Nasdaq Composite (RIXF) added 22 points, or 0.5%,
to 4,540.74.
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"The Fed is not going to need to hurry and is going to be very
careful. It does not want to make the mistake of raising interest
rates too soon and risk tipping the economy back toward a slower
pace of growth," wrote Scott Wren, senior equity strategist at
Wells Fargo Advisors.
"Those anticipating a more hawkish tone from the Fed will likely
be disappointed," Wren added.
Joe Bell, senior equity analyst at Schaeffer's Investment
Research, pointed out that the market has not seen dramatic
selloffs and small consolidation is logical after a strong rally
like the one in August.
"Markets are pricing in the beginning of interest-rate hikes at
spring-summer of 2015 and whether it will be in April or August
does not make much difference, Bell said.
In economic news, producer prices were flat in August thanks to
falling gasoline and food costs, another sign that inflationary
pressure is receding. It was the lowest reading in the producer
price index since December, the Labor Department reported.
Global Head of Asset Allocation at Societe Generale Alain
Bokobza and his team advised investors to "switch out of expensive,
illiquid and over-owned assets" like small-cap stocks and into
large-cap equities in Europe and the U.S. "As the Fed continues to
normalize its monetary policy, small caps are at risk of a large
correction," he wrote. Read Need to Know: A dearth of deep-value
plays
Data compiled by Bloomberg News showed 47% of stocks in the
Nasdaq Composite are down at least 20% from their peak in the past
12 months, and more than 40% of Russell 2000 (RUT) companies have
fallen by as much. Meanwhile, the S&P 500 index has logged 33
new closing highs this year, and fewer than 6% of companies have
entered what is considered bear-market territory, Bloomberg
reported Monday.and
Stocks to watch: Majesco Entertainment Co. (COOL) fell 19% after
a similar drop late Monday when the video-game maker posted a
larger-than-expected third-quarter loss.
Wynn Resorts Ltd. (WYNN) dropped 2.1%, falling for a third
trading session amid declining revenue concerns from its properties
in Macau. However, Nomura analyst Harry Curtis noted that Wynn's
recent drop has made it a fair value at current prices.
Humana Inc. (HUM) shares rallied 3.2% after the health insurance
company unveiled a $2 billion buyback program that will replace its
current share repurchase program.
Tesla Motors Inc. (TSLA) rose 1.6% recouping some of the sharp
losses Monday when a Morgan Stanley argued that the electric-car
maker's stock is overvalued. Trip Chowdhry at Global Equities
Research, however, advised in a note Tuesday that investors buy
Tesla on weakness, reiterating an overweight rating and a
12-to-18-month price target of $385. (Read more about the day's
notable movers here:
http://www.marketwatch.com/story/adobe-factset-earnings-in-spotlight-2014-09-16.)
Other markets: Oil prices rallied after OPEC's secretary general
Abdalla el-Badri reportedly said he expects oil prices to recover
later this year. In addition, he said OPEC may cut its output
targets, according to media reports. The comments pushed crude-oil
prices (CLV4) up by almost 2% and helped U.S. energy majors.
Asian stocks largely fell. China's largest wireless carrier
China Mobile Ltd. tumbled 3.8% at the close, after reports said the
release date for iPhone 6 in mainland China is still uncertain.
China data also showed that in August foreign direct investment
fell to a four-year low. This followed weak factory data released
over the weekend.
Worries about this week's Scottish referendum continued to dull
markets, also weighing some on U.S. stock futures and a
disappointing German economic sentiment survey further put pressure
on European stocks .
Among currencies, the Russian ruble (USDRUB) continued to fall
against the U.S. dollar, off another 1% as sanctions worries
weighed. Gold(GCZ4) prices were little changed.
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