Rates Rise as Fed Begins 2-Day Meeting; Apple Leads Stocks Higher With Earnings Beat

Rising interest rates and a stronger U.S. Dollar took a backseat late in the day on Tuesday with the release of Apple’s quarterly results moving to the forefront.

Economic News

The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting on Tuesday. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group’s Fed Watch tool.

However, traders will be looking at the monetary policy statement for clues about the central bank’s views on inflation and the economy. The statement may also reveal the central bank’s thoughts on future rate hikes. At this time, traders are pricing in a quarter-point rate hike for June.

In economic news, the ISM manufacturing index hit 57.3 in April. Home prices surged 7 percent higher in March compared with a year ago, making the gain the biggest since May 2014. Construction spending came in below expectations at -1.7%.

U.S. Treasury Markets

U.S. Treasury yields rose on Tuesday as a Federal Reserve monetary policy meeting got under way. The two-year note yield climbed to 2.512 percent and hit its highest level since September 2008, when it hit 2.542 percent. The yield on the benchmark 10-year Treasury note was also higher at 2.977 percent, while the yield on the 30-year Treasury bond rose to 3.139 percent.

U.S. Equity Markets

The major U.S. stock indexes traded mostly lower on Tuesday before mounting a strong rally into the close ahead of Apple’s quarterly earnings release. The late session rally was primarily driven by a solid recovery in the NASDAQ Composite.

Earlier in the session, the Dow Jones Industrial Average fell over 300 points on weakness in defense stocks. The benchmark S&P 500 was driven lower by weakness in several sectors including energy, materials and industrials.

After the close on Tuesday, Apple reported quarterly earnings and revenue on Tuesday that beat expectations, but sold fewer iPhones than expected. Shares rose as much as 5 percent after hours, as investors digested the company’s better-than-expected outlook for the current quarter, and a hefty capital return program.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil tumbled on Tuesday after a private report showed high U.S. oil supplies.

According to the American Petroleum Institute (API), crude inventories rose by 3.4 million barrels to 432.575 million in the week to April 27.