Wall St bounces on Fed expectations

Last week was a rough period for the US stock markets, with pessimism about the future of central bank stimulus contributing to both pessimism and volatility, but this week has kicked off on a hopeful note

Stocks on Wall Street climbed over 1% on Monday, as speculation mounts that the Federal Reserve will opt to stick with its current stimulus plan in order to protect the economic recovery.

Gains were broad, with tech, energy and financial stocks leading the charge.

Equities were supported by data from the National Association of Home Builders that indicated a strong improvement in optimism amongst US house builders in June. The NAHB housing market index climbed to a seven-year high of 52.

It’s possible that qualms over potential tapering by the Fed in the next few months may already be priced into the market. The Fed’s two-day policy meeting begins tomorrow and its shadow looms large.

Every piece of economic news is being viewed with one eye on what it means for the economy directly and one eye on how it might affect the Fed’s QE. It is a sign of promise though that the dropping markets have still been able to attract buyers, with the S&P 500 keeping its head above the 50-day moving average for now.

The earlier Empire State manufacturing data, which climbed to a reading of 7.84 in June from May's level of -1.43, was a bit of a double-edged sword. The headline rate suggested a rebound, but many of the sub-indices showed decided weakness and on balance I think this report adds ammunition to the dovish contingent at the Fed.

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