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Nasdaq notches another closing high, Dow up 99

Adam Shell
USA TODAY

Investors were in a risk-taking mood again Thursday as stocks pushed higher, building on a rally sparked by the Federal Reserve's decision not to raise interest rates and its plans to move rates up at a slow pace.

Traders and financial professionals work on the floor of the New York Stock Exchange.

The Nasdaq composite, which notched fresh record highs Wednesday, was up 0.8% to hit a new all-time closing high.

After jumping 164 points Wednesday following the Fed's non-action on rates, the Dow Jones industrial average climbed 99 points, or 0.5%. The broad Standard & Poor's 500 stock index ended 0.7% higher.

 

Stocks also shot up around the globe, with Japan's Nikkei 225 index closing nearly 2% higher and the  broad Stoxx Europe 600 index surging 1.5%.

The Fed opted to hold off on raising rates Wednesday, arguing that even though the "case" for a rate increase has "strengthened," they opted to keep rates steady for now to give the improving labor market more room to run and to boost the chances of nudging inflation back up towards its 2% mandate. Add to that the fact that the Fed downgraded the number of rate hikes it sees in coming years and what Wall Street is seeing is a "risk-on" attitude.

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The general consensus on Wall Street is that the Fed's next hike won't come before its December meeting.

Says Tony Bedikian, head of global markets at Citizens Bank: "It puts December more so on the table,  but the data needs to be supportive."

"The Fed is in no hurry to raise rates," Arnaud Masset, market analyst at Swissquote Bank, said via e-mail. "We believe that the unemployment rate has been underestimated and that the Fed is holding out for some improvement. A December move appears increasingly likely, especially if the U.S. economy maintains its current pace."

The market-friendly Fed rate decision sparked a rally in the bond market, which pushed down yields on U.S. government bonds. The yield on the 10-year U.S. Treasury note fell to 1.616% Thursday, its lowest level since Sept. 9.

On the economic front, investors were greeted with more good news on the jobs front. The number of Americans filing for first-time unemployment benefits fell 8,000 to 252,000 in the latest weekly data. It marked the lowest jobless claims number since July.

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In a sign of Wall Street's more optimistic tone following yesterday's Fed decision, the number of stocks closing higher Wednesday trounced losers by a 9 to 1 margin, with nearly 90% of total stock market volume skewing to the upside, according to Strategas Research Partners.

Fawad Razaqzada, market analyst at Forex.com, said via e-mail that the stock market’s positive response "clearly underscores investors’ faith that the era of low and negative interest rates, and QE, is far from over."

Says Razaqzada: "Indeed, the Bank of Japan (Wednesday) promised to buy bonds until inflation overshoots its target, which could take several years given that Japan is currently in deflation. The Bank of England and the European Central Bank have their own (asset-purchase) programs ongoing at the moment. And although the Federal Reserve looks set to raise rates in December, it will most likely be a small increase and the tightening cycle a slow one. So monetary policy is likely to remain extremely accommodative across the board for the foreseeable future. Against this backdrop, I can’t help but maintain my long-term bullish stance on the equity markets."

While the Fed's decision to keep rates steady has reduced market volatility for the moment, that could change, says Mike Materasso, senior vice president of fixed income at Franklin Templeton.

"One factor that will have an impact on markets and stocks, bonds and currencies will be the presidential election," Materasso told USA TODAY. If Donald Truump, who is still viewed as an underdog, puts in a good debate performance Monday and is viewed as a legitimate contender for the White House it could roil markets.

"If Trump has a good showing in the upcoming debate it could cause volatility, because (a potential Trump presidentcy) is not really priced into the market," says Materasso.

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