US Markets

Dow closes 73 points higher, capping off best month since March 2016

Key Points
  • The Dow Jones industrial average and S&P 500 notched their best monthly performances since March 2016.
  • The major indexes briefly turned negative after the Federal Reserve gave an upgraded assessment of the economy.
  • Stocks also rebounded from a sharp two-day sell-off, helped by stronger-than-expected earnings.
Fed: No rate hike but more aggressive inflation expectations

U.S. stocks rose on Wednesday, capping off a strong start to 2018. The Dow Jones industrial average and S&P 500 notched their best monthly performances since March 2016.

The Dow gained 72.5 points to close at 26,149.39, with Boeing rising 4.9 percent and hitting an all-time high. The rose 0.1 percent and finished at 2,823.81, with real estate as the best-performing sector. The Nasdaq composite advanced 0.1 percent to close at 7,411.48.

For the month, the Dow and S&P 500 posted gains of 5.6 percent and 5.8 percent, respectively. The Nasdaq meanwhile, rose 7.3 percent for the month, its best monthly gain since October 2015.

The major indexes briefly turned negative Wednesday after a statement from the Federal Reserve sent interest rates higher.

"The combination of the Fed and the fact that people want to book an awesome month could've taken us lower" earlier in the session, said Jeremy Klein, chief market strategist at FBN Securities.

The Fed left rates unchanged, but said it expects inflation to move "up this year and to stabilize" around its 2 percent target. Treasury yields rose on the back of the statement. The benchmark 10-year yield rose to 2.75 percent, before trading at 2.72 percent, while the two-year yield held around 2.15 percent.

"The statement is pretty consistent with what we've seen in the underlying data," said Erik Schiller, senior portfolio manager at PGIM Fixed Income. "It was a slightly hawkish statement, in our view."

Traders work on the floor of the New York Stock Exchange on January 5, 2017, in New York City.
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U.S. economic data have been strong lately. ADP and Moody's Analytics Wednesday said private companies added 234,000 jobs in January. Economists polled by Reuters expected a gain of 185,000. Meanwhile, weekly jobless claims remain near their lowest levels in about 40 years.

"The language in the statement is a little strong, but it's not dramatically hawkish," said Ernie Cecilia, CIO at Bryn Mawr Trust. "This is about the recognition of a stronger economy and perhaps higher inflation."

The major indexes fell sharply in the previous two sessions, with the Dow falling more than 500 points in that time period. Rising yields have also put stocks under pressure, elevating concerns over whether higher interest rates could snuff out the bull market.

"There was quite a bit of damage done on a short-term basis with equity indices and many sectors snapping one-month trendlines on heavy negative breadth and higher volume," Mark Newton, managing member at Newton Advisors, in a note to clients. "It's tough to think markets simply recover right away and this proved to be two days only."

Boeing, Eli Lilly and, Anthem among the latest companies that reported quarterly results. Their earnings and revenues topped analyst expectations. Thus far, corporate earnings have mostly surpassed analyst expectations.

Of the S&P 500 companies that had reported as of Tuesday morning, 80 percent have posted better-than-expected earnings, while 81 percent have beaten top-line estimates, according to Thomson Reuters I/B/E/S.

On the political front, investors digested President Donald Trump's State of the Union address.
The overall theme of the incumbent's speech was "a safe, strong and proud America," with Trump touching upon topics such as immigration, bipartisan cooperation, infrastructure and the economy.

"The biggest reaction was towards the end, when it became clear there weren't going to be any surprises," said Chuck Self, chief investment officer of iSectors. He noted stock futures started to climb around that time Tuesday night.