Stocks brushed off a muted start on Wall Street and notched modest gains Wednesday after the Federal Reserve reaffirmed that it is prepared to cut interest rates if needed to shield the U.S. economy from trade conflicts or other threats.
In a widely expected move, the central bank's policymakers decided to leave the Fed's benchmark interest rate unchanged. Still, by signaling the possibility of lower rates, the Fed reassured investors who have been worried that the trade war between Washington and Beijing could weigh on global economic growth, and by extension, corporate profits.
The reaction to the Fed's midafternoon statement was more pronounced in the bond market, where the yield on the 10-year Treasury note slid to 2.03%, its lowest level since November 2016. The move signals that bond traders see an increased likelihood that the Fed will lower rates. Investors are betting on at least one interest rate cut this year, possibly as early as July.
"The story of the last six months is equities are comforted when they believe that the Fed is going to be supportive and going to provide offsets to some of the policy uncertainties that are out there," said Willie Delwiche, investment strategist at Baird.
The latest gain extended the market's winning streak to a third day, adding to a June rebound in stocks after a dismal sell-off in May.
The S&P 500 rose 8.71 points, or 0.3%, to 2,926.46. The broad market index is within striking range of its all-time high, set on April 30.
The Dow Jones Industrial Average gained 38.46 points, or 0.1%, to 26,504. The Nasdaq composite added 33.44 points, or 0.4%, to 7,987.32. The Russell 2000 index of smaller companies picked up 5.35 points, or 0.3%, to 1,555.58.
Major stock indexes in Europe finished mixed.
U.S. stock indexes spent much of the day wavering between small gains and losses as investors waited for the Fed to deliver its update on interest rates following a two-day meeting of policymakers.
The Fed left its key interest rate, which influences many consumer and business loans, unchanged Wednesday in a range of 2.25% to 2.5%. That's where it's been since December.
The central bank also said that because "uncertainties" have increased, it would "act as appropriate to sustain the expansion." That language echoed a remark that Chairman Jerome Powell made two weeks ago that many investors interpreted as a signal that rate cuts were on the way, triggering a rally on Wall Street.
The Fed also removed a reference to being "patient" about adjusting rates. That suggests that the central bank is now inclined to begin cutting rates for the first time in more than a decade to help stabilize the economy.
"They don't want to overreact to one data point here or one data point there," Delwiche said. "They're trying to establish what is the trend in the economy and the degree to which economic conditions have actually deteriorated before making a move."
Most analysts say they think economic growth has slowed sharply in the April-June quarter to around a 1.5% percent annual rate, only half the pace of the past year.
The Fed's statement came a day after the head of the European Central Bank said it was ready to cut interest rates and provide additional economic stimulus if necessary.
The biggest issue looming over the market remains the U.S. trade war with China. Stocks opened the week higher and rallied on Tuesday after President Donald Trump said he plans to meet with China's president at the end of the month to discuss their ongoing trade war. The announcement injected some hope into a market that has been volatile because of concerns over the lingering trade dispute and its potential impact on economic growth.
The market has rallied in the past and then dipped again because of seemingly good news on trade talks that did not result in any concrete progress.
Health care stocks drove much of the market's gains Wednesday. Allergan climbed 6.2% and UnitedHealth Group rose 1.8%.
Technology stocks rose, with software maker Adobe leading the way with a 5.2% gain on solid profit results. Household goods makers also notched gains. Kraft Heinz added 2.3%.
Utilities, which tend to rise when bond yields decline, also rose. Edison International gained 2.8%.
Financial companies, including banks, were the biggest laggards. The sector is sensitive to the moves in the bond market. Lower bond yields pull down the interest rates that banks charge on loans. Synchrony Financial dropped 1.7%.
The 10-year Treasury yield has been declining steadily since hitting a high of 3.23% last November. It fell to 2.03% Wednesday, down from 2.06% late Tuesday.
Benchmark crude oil fell 0.3% to settle at $53.76 a barrel. Brent crude oil, the international standard, fell 0.5% to close at $61.82 a barrel. Wholesale gasoline rose 0.8% to $1.74 per gallon. Heating oil climbed 0.1% to $1.83 per gallon. Natural gas fell 2.2% to $2.28 per 1,000 cubic feet.
Gold edged down 0.1% to $1,348.80 per ounce, silver fell 0.2% to $14.96 per ounce and copper fell 0.8% to $2.68 per pound.
The dollar fell to 107.97 Japanese yen from 108.44 yen on Friday. The euro rose to $1.1245 from $1.1196.