Dow closes 116 points higher as Fed meeting kicks off

  • The rise in stocks comes a day after a sharp sell-off led by tech shares.
  • Market expectations for a March rate hike are 94.4 percent as of Tuesday afternoon, according to the CME Group's FedWatch tool.
  • While most market participants expect the Fed to raise rates by 25 basis points, they will also look for clues about the central bank's tightening projections.

U.S. stocks climbed on Tuesday as the Federal Reserve started a two-day monetary policy meeting, with most market participants expecting a rate hike.

The Dow Jones industrial average rose 116.36 points to close at 24,727.27, with Boeing as the best-performing stock. The S&P 500 gained 0.2 percent to end at 2,716.94, with energy leading the gains. The Nasdaq composite advanced 0.3 percent 7,364.30.

Market expectations for a March rate hike are 94.4 percent as of Tuesday afternoon, according to the CME Group's FedWatch tool. While most market participants expect the Fed to raise rates by 25 basis points, they will also look for clues about whether the central bank will stay on track to hike three times this year or if it expects to further tighten policy.

"The upcoming FOMC meeting is preceded by a market crash, elevated volatility, rising negative sentiment around trade, while consensus view of the Fed remains hawkish," said Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan, said in a note Tuesday. "Given this backdrop, even a slightly dovish Fed outcome would setup a rather low bar for equities to advance."

Federal Reserve Chairman Jerome Powell arrives to take the oath of office at the Federal Reserve in Washington, U.S., February 5, 2018.
Aaron P. Bernstein | Reuters
Federal Reserve Chairman Jerome Powell arrives to take the oath of office at the Federal Reserve in Washington, U.S., February 5, 2018.

The Fed is scheduled to make its monetary announcement Wednesday at 2 p.m. ET, with new Chair Jerome Powell set to give his first news conference.

"The market has liked that the Fed has been pretty forthcoming about what their intent is," said Tim Courtney, chief investment officer at Exencial Wealth Advisors. "I think the market wants to see them continue to lay out their plan to get rates closer to historical levels."

Treasury yields rose ahead of the Fed announcement. The benchmark 10-year note yield traded at 2.885 percent, while the short-term two-year yield rose to 2.341 percent.

"Everything I've seen and hears is they're going to continue their wait-and-see approach. That's the smartest thing they can do," said Jeff Powell, managing partner at Polaris Greystone. "We've got a strong economy, but not an overheated economy."

Stocks rose a day after a sharp pullback sparked by a decline in Facebook shares. Facebook suffered its biggest one-day drop since March 2014 on Monday after reports said political analytics firm Cambridge Analytica was able to collect data on 50 million people's profiles without their consent.

Facebook's drop dragged the entire tech sector lower, which subsequently pressured the broader market.

But Michael Block, chief strategist at Rhino Trading Partners, said in a note Monday his firm bought large-cap tech heading into Monday's close. "The tech selloff was micro and not macro driven and we do think that anyone pressing it on alleged macro concerns may get caught the wrong way," he said.

Shares of large-cap tech names Netflix and Amazon both closed higher on Tuesday.

In corporate news, shares of Roku rose as much as 4.9 percent after analysts at Oppenheimer upgraded them to perform from underperform, citing catalysts like accelerated cord-cutting trends.