Stocks Rally On Optimism Fed Will Hold Off On Raising Rates - U.S. Commentary

(RTTNews) - After moving moderately higher in early trading on Tuesday, stocks saw further upside as the day progressed before closing sharply higher. The strong gains on the day more than offset the pullback seen in the previous session.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow soared 228.89 points or 1.4 percent to 16,599.85, the Nasdaq jumped 54.76 points or 1.1 percent to 4,860.52 and the S&P 500 surged up 25.06 points or 1.3 percent to 1,978.09.

The rally on Wall Street came as some weaker than expected economic data provided support for the view that the Federal Reserve will leave interest rates unchanged later this week.

Before the start of trading, the Commerce Department released a report showing that U.S. retail sales rose slightly less than expected in August.

The report said retail sales edged up by 0.2 percent in August following an upwardly revised 0.7 percent increase in July. Economists had expected retail sales to rise by 0.3 percent.

Additionally, the New York Federal Reserve said its index of regional manufacturing activity continued to point to a notable contraction in the month of September.

The Fed also released a report showing a bigger than expected decrease in industrial production in the month of August.

The report said industrial production fell by 0.4 percent in August following an upwardly revised 0.9 percent increase in July. Production had been expected to dip by 0.2 percent.

Rob Carnell, chief international economist at ING, said, "All in all, weak, disappointing, and taken together with other data earlier today - retail sales and Empire manufacturing - nudges the argument in the direction of the FOMC doves."

"With only CPI left to come before the September 17th meeting, and that likely to be on the low side, the data dependent FOMC might find the pendulum swinging a little more to the 'no hike' side," he added.

The Fed is scheduled to begin its two-day monetary policy meeting on Wednesday, with the announcement of its decision due Thursday afternoon.

Sector News

Transportation stocks showed a substantial move to the upside over the course of the trading day, driving the Dow Jones Transportation Average up by 1.9 percent. With the gain, the average reached its best closing level in almost a month.

UPS (UPS), Avis Budget Group (CAR), and Matson (MATX) turned in some of the transportation sector's best performances on the day.

Significant strength also emerged among software stocks, as reflected by the 1.7 percent gain posted by the Dow Jones Software Index. Industry giant Microsoft (MSFT) helped to lead the software sector higher, jumping by 2.2 percent.

Banking stocks also saw considerable strength, resulting in a 1.7 percent advance by the Dow Jones Banks Index. U.S. Bancorp (USB) and Bank of America (BAC) posted standout gains.

Most of the other major sectors also moved higher on the day, with notable strength visible among oil service, internet, and brokerage stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Tuesday. Hong Kong's Hang Seng Index fell by 0.5 percent, while China's Shanghai Composite Index plunged by 3.5 percent. However, Japan's Nikkei 225 Index bucked the downtrend and rose by 0.3 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the French CAC 40 Index surged up by 1.1 percent, the U.K.'s FTSE 100 Index advanced by 0.9 percent and the German climbed by 0.6 percent.

In the bond market, treasuries saw substantial weakness after ending the previous session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 10.1 basis points to 2.281 percent.

Looking Ahead

Trading on Wednesday may be impacted by the Labor Department's report on consumer price inflation as well as the National Association of Home Builders' report on homebuilder confidence.