FILE- In this May 10, 2018, file photo signs for the New York Stock Exchange hang above the trading floor. The U.S. stock market opens at 9:30 a.m. EDT on Wednesday, Sept. 26. (AP Photo/Mark Lennihan, File)

US stocks hold onto modest gains following Fed rate increase

September 26, 2018 - 2:31 pm

NEW YORK (AP) — U.S. stock indexes rose Wednesday after the Federal Reserve raised interest rates for the third time this year in the face of the strengthening economy.

Markets were widely expecting the move, and the announcement did not create big reactions for stocks or bonds, as can sometimes happen when investors are caught off guard. Stocks held onto their gains from the morning, while Treasury yields remained modestly lower.

Most investors expect a fourth rate increase in December with perhaps a few more in 2019, as the economy continues to strengthen. Rates are still low, but investors worry a quick jump would unsettle markets and halt what's become the longest bull market for U.S. stocks on record.

KEEPING SCORE: The S&P 500 was up 10 points, or 0.3 percent, at 2,925, as of 2:12 p.m. Eastern time. It rose a couple points after the Fed's announcement.

The Dow Jones industrial average rose 73, or 0.3 percent, to 26,566, and the Nasdaq composite rose 42 points, or 0.5 percent, to 8,049.

FED WATCH: The Federal Reserve has been raising rates from their record lows, when they were at basically zero following the 2008 financial crisis. High rates in the past have been the death knell for economic expansions and bull runs for stocks, but analysts say markets can continue to rise as long as this rise in rates is gradual and for the right reasons.

"If the sense is that we're overheating and inflation is a problem and will eat into corporate profits and a rise in interest rates will choke off growth, that will be a problem," said Brian Nick, chief investment strategist at Nuveen. "But if rates go up more slowly because the economy is doing better, it's not that big a deal."

The Fed indicated Wednesday that it expects to raise rates one more time this year, three times in 2019 and once in 2020. Fed officials also raised their forecast for economic growth this year.

YIELDS: Treasury yields have been climbing steadily this year as the strengthening economy bolstered expectations for rate increases by the Fed.

The yield on the 10-year Treasury note is close to its highest level since 2011, but it dipped on Wednesday to 3.07 percent from 3.10 percent late Tuesday.

The two-year Treasury yield, which more closely tracks movements by the Fed, dipped to 2.82 percent from 2.83 percent and is close to its highest level in a decade.

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DRESSED DOWN: Cintas, which provides workers' uniforms, restroom supplies and other products to companies, had the sharpest loss in the S&P 500 despite reporting better earnings than analysts expected for the latest quarter. Growth in rentals fell short of some forecasts. Cintas lost 3.98 percent to $204.93.

MARKETS OVERSEAS: Indexes in Europe were mostly steady ahead of the Fed's decision. France's CAC 40 added 0.5 percent, while Germany's DAX rose 0.1 percent. Britain's FTSE 100 was also up 0.1 percent.

In Asia, Japan's Nikkei 225 rose 0.4 percent, and the Hang Seng in Hong Kong jumped 1.2 percent.

COMMODITIES: Benchmark U.S. crude oil fell 69 cents to $71.59 per barrel. Brent crude, the international standard, lost 52 cents to $80.74.

Gold dropped $4.00 to $1,201.10 per ounce.

CURRENCIES: The dollar dipped to 112.92 Japanese yen from 112.93 yen late Tuesday. The euro rose to $1.1772 from $1.1767, and the British pound rose to $1.3194 from $1.3186.

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