Mid-day: Stocks rally, but trade off highs in front of Fed decision

The S&P 500 is up 1.3% heading into the FOMC’s policy decision at 2:00 p.m. ET and Fed Chair Powell’s press conference at 2:30 p.m. ET. The Nasdaq Composite is up 2.2%, the Dow Jones Industrial Average is up 1.0%, and the Russell 2000 is up 2.4%.

The stock market has tempered its bullish bias in recent trade, but the market has received support from Russia and Ukraine reporting continued progress in peace talks despite conflicting reports. The Independent reported that Ukraine has rejected Russia’s claims that it was open to adopting a neutrality plan.

The market is still appreciating the potential for a ceasefire deal while investors take note of the huge moves in Chinese ADRs. Those stocks are rallying from depressed levels after China’s Vice Premier Liu He pledged support for the economy and markets, according to Reuters .

Shares of Alibaba ( BABA 97.29, +20.57, +26.8%) are currently up 27% at the NYSE. More broadly, advancing issues have a 5:1 advantage over declining issues at the NYSE.

A quick snapshot of the S&P 500 sectors shows financials (+2.3%) and consumer discretionary (+2.1%) up more than 2.0%, while the utilities (-0.7%) and consumer staples (-0.1%) sectors trade lower.

Regarding the Fed, the central bank is expected to raise the target range for the fed funds rate by 25 basis points. Investors will look over the Fed’s updated economic projections, then turn to Fed Chair Powell for any guidance on future rate hikes and plans for the reducing the balance sheet.

The 10-yr yield is creeping higher by two basis points to 2.18%, as the Treasury market awaits the Fed decision while digesting hot import/export pricing data for February. Retail sales for February missed expectations, but the January increases saw healthy upwards revisions.

Separately, Starbucks ( SBUX 87.51, +4.40, +5.3%) is one of today’s story stocks after the company announced CEO Kevin Johnson will retire on April 4 and that Howard Schultz will serve as interim CEO. The Board plans to find a replacement by the fall.

Reviewing today’s economic data:

  • The Retail Sales report was not as disappointing as the headlines might suggest. Total retail sales increased 0.3% month-over-month in February (Briefing.com consensus +0.4%), yet they were actually stronger than expected after accounting for the large upward revision to January to +4.9% from +3.8%. The same goes for retail sales, excluding autos. They were up 0.2% month-over-month (Briefing.com consensus +0.8%), yet that followed an upward revision for January to +4.4% from +3.3%.
  • The key takeaway from the report is that there was a natural slowdown after a huge month of sales in January; however, gasoline station sales (+5.3%) were the difference maker in February. Excluding gasoline stations, retail sales declined 0.2% month-over-month, providing a sign of things to come perhaps as gas prices have moved higher in March.
  • Import prices rose 1.4% in February after increasing 1.9% in January. Excluding oil, import prices rose 0.8% after increasing 1.3% in January. Export prices rose 3.0% after increasing 2.8% in January. Excluding agriculture, export prices also rose 3.0% after increasing 2.8% in January.
  • The NAHB Housing Market Index for March decreased to 79 (Briefing.com consensus 81) from a revised reading of 81 (from 82) in February.
  • Business inventories increased 1.1% m/m in January following a revised 2.4% increase (from 2.1%) in December.
  • The weekly MBA Mortgage Applications Index declined 1.2% following an 8.5% increase in the prior week.