Market Wrap: Stocks Rally on Raised December Rate Hike Bet

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Financial Markets Wall Street
Richard Drew/AP
By Sinead Carew

NEW YORK -- U.S. stocks closed higher Wednesday and investors appeared positively inclined toward higher rates after minutes from the Federal Reserve October meeting showed a solid core of officials rallied behind a possible December rate hike.

Central bankers at the October policy meeting also debated evidence the U.S. economy's long-term potential may have permanently shifted lower.

The three major indexes added to earlier gains after the 2:00 p.m. Eastern time release and buying accelerated ahead of the close.

%VIRTUAL-pullquote-I think the market is ready and comfortable for an increasing Fed funds rate.%"I think the market is ready and comfortable for an increasing Fed funds rate," said Alan Rechtschaffen, portfolio manager at UBS Wealth Management Americas in New York. "We just have to turn this aircraft carrier around, get out of this zombie-like economy which is being fed on an elixir of low interest rates and get to a process of normalization."

The Dow Jones industrial average (^DJI) rose 247.66 points, or 1.4 percent, to 17,737.16, the Standard & Poor's 500 index (^GSPC) gained 33.14 points, or 1.6 percent, to 2,083.58 and the Nasdaq composite (^IXIC) added 89.19 points, or 1.8 percent, to 5,075.20.

Investors widely expect the central bank to raise rates in December, but remain uncertain about the magnitude of the increase and the pace of further hikes.

While stocks often sell off on the prospect of a rate hike, which would raise borrowing costs, many investors are now focusing on a hike as a positive reading for the economy.

"It sounds pretty hawkish to me, that they want to raise rates in December," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin. "That should be a confidence-boosting thing. That means they're more confident in our economy now."

Apple (AAPL) shares rose 3.2 percent at $117.29 after Goldman Sachs (GS) added the iPhone-maker to its "conviction buy" list, saying it sees potential for the stock gaining as much as 43 percent from current levels.

The stock provided the biggest boost to the three major indexes.

Movers and Shakers

All 10 S&P sectors closed higher, led by a 2-percent rise in health care, followed by a 1.8-percent rise for the financial sector, which would benefit from higher rates.

Qualcomm and Target were the biggest drags on the S&P. Qualcomm (QCOM) fell 9.4 percent after a South Korean regulator alleged it violated competition laws.

Target (TGT) fell 4.3 percent after warning it will miss its fiscal-year forecast for online sales growth.

Data released Wednesday showed housing starts fell to a seven-month low, but a surge in building permits suggested the housing market remained on solid ground.

NYSE advancing issues outnumbered decliners 2,371 to 697, for a 3.40-to-1 ratio; on the Nasdaq, 1,936 issues rose and 920 fell, for a 2.10-to-1 ratio favoring advancers.

The S&P 500 posted 19 new 52-week highs and 7 lows; the Nasdaq recorded 55 new highs and 116 lows. About 7.2 billion shares changed hands on U.S. exchanges, compared with the 7.3 billion daily average for the past 20 trading days, according to Thomson Reuters (TRI) data.

-Chuck Mikolajczak in New York and Abhiram Nandakumar in Bangalore, India contributed reporting.

What to watch Thursday:
  • The Labor Department releases weekly jobless claims at 8:30 a.m. Eastern time.
  • Freddie Mac, the mortgage company, releases weekly mortgage rates at 10 a.m.
Earnings Season
These selected companies are scheduled to report quarterly financial results.
  • Best Buy (BBY)
  • Gap (GPS)
  • Intuit (INTU)
  • Ross Stores (ROST)
  • J.M. Smucker Co. (SJM)
  • Williams-Sonoma (WSM)
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