After an initial rally fueled by unexpectedly mild consumer price inflation data, stocks experienced some volatility following the Federal Reserve's monetary policy announcement but still managed to end Wednesday's trading predominantly higher.
The Nasdaq led the market surge, climbing 264.89 points or 1.5 percent to a record closing high of 17,608.44. The S&P 500 also set a new record, rising 45.71 points or 0.9 percent to close at 5,421.03.
Conversely, the Dow Jones Industrial Average gave up ground after an early upward move, ending the day down 35.21 points or 0.1 percent at 38,712.21.
The early rally on Wall Street was prompted by a Labor Department report indicating that U.S. consumer prices remained flat in May, defying economists' expectations of a 0.1 percent increase. In April, the consumer price index had risen by 0.3 percent.
A significant 3.5 percent plunge in gasoline prices offset the ongoing rise in shelter costs, resulting in the unchanged reading.
Core consumer prices, which exclude food and energy, saw a 0.2 percent increase in May, following a 0.3 percent climb in April. Economists had projected a continued 0.3 percent rise.
The report also revealed that the annual rate of consumer price growth slowed to 3.3 percent in May from 3.4 percent in April, contrary to expectations of an unchanged pace. Core consumer price growth similarly decelerated to 3.4 percent from 3.6 percent, with forecasts predicting a dip to 3.5 percent.
These slower annual growth rates fostered renewed optimism about the outlook for interest rates ahead of the Fed's announcement.
While the Fed, as anticipated, opted to leave interest rates unchanged, it disclosed that officials now expect only one interest rate cut this year. The central bank maintained the target range for the federal funds rate at 5.25 to 5.50 percent, citing its goals of maximum employment and long-term inflation at 2 percent.
Despite acknowledging modest progress toward its inflation objective, the Fed indicated that officials still require "greater confidence" that inflation is sustainably moving towards the target before considering rate cuts.
This need for "greater confidence" was evident in Fed officials' latest interest rate forecasts. The new projections suggest just one rate cut this year, with year-end rates expected in the 5.0 to 5.25 percent range, compared to three cuts forecasted in March. However, the accompanying dot plot reveals significant division among Fed officials regarding the rate outlook.
"More participants expect to cut twice than once, but no one expects to cut more than twice, while four don't expect to cut at all this year," noted FHN Financial Chief Economist Chris Low. "So, a plurality favor two cuts, but the median is for one."
Sector Highlights
Interest rate-sensitive housing stocks posted some of the day's best performances, with the Philadelphia Housing Sector Index jumping 2.9 percent. Semiconductor stocks also demonstrated substantial strength, as evidenced by the 2.9 percent rise in the Philadelphia Semiconductor Index.
Software and computer hardware stocks contributed to the tech-heavy Nasdaq's rally. Airline, banking, and brokerage stocks also showed notable strength, contrasting with oil producer stocks that declined despite an uptick in crude oil prices.
International Markets
In overseas trading, stock markets across the Asia-Pacific region delivered a mixed performance on Wednesday. Japan's Nikkei 225 Index fell by 0.7 percent, while China's Shanghai Composite Index climbed by 0.3 percent.
Major European markets closed significantly higher. Germany's DAX Index soared by 1.4 percent, France's CAC 40 Index jumped by 1.0 percent, and the U.K.'s FTSE 100 Index rose by 0.8 percent.
Bond Market
Treasuries surged in response to the consumer price inflation data, continuing the previous day's rebound. As a result, the yield on the benchmark ten-year note, which moves inversely to its price, dropped 10.9 basis points to 4.295 percent.
Looking Forward
Thursday's trading activity may continue to be influenced by reactions to the Fed announcement. Additionally, reports on producer prices and weekly jobless claims are likely to draw attention.
