It's all about the Fed.
U.S. stocks moved higher Tuesday, helped by news of a pickup in home building and low inflation. But the Federal Reserve loomed large, with investors trying to guess what the central bank will say Wednesday about how long it plans to keep stimulus programs in place. For many, the market was in a holding pattern as investors waited for Wednesday's announcement.
The market's gains were steady and broad. The Standard & Poor's 500 index rose 12.77 points, or 0.8 percent, to 1,651.81. All 10 of its sectors rose, led by industrial and telecommunications companies. The Russell 2000, an index of smaller companies, closed at a record high but fell just shy of the 1,000-point milestone.
Tuesday's wait-and-see vibe came from a familiar template. The Fed has had an outsized effect on the stock market in recent weeks, with the major indexes getting yanked back and forth as investors try to guess how long the central bank will keep supporting the U.S. economy.
Some investors say it's troubling that the market is relying more on the central bank for direction than economic fundamentals. The latest turning point was May 22, when Fed Chairman Ben Bernanke startled markets by announcing that the central bank could soon pull back on its bond-buying program if the economy improves.
"Here we are again," said Gregg Fisher, founder and chief investment officer of Gerstein Fisher in New York. "We don't know what the actions will be. We're all trying to figure that out."
The Fed's role in the market has swelled since the 2008 financial crisis. The central bank, which traditionally has been best-known for helping set interest rates, has taken an increasingly bigger role in trying to amp up the economy. Its bond-buying program is meant to keep interest rates low, which can encourage borrowing and drive investors into the stockmarket. The Fed's purchases have swollen its portfolio to $3.4 trillion, a four-fold increase since before the crisis.
"The game is different from what it used to be," said Mark Spellman, portfolio manager for Value Line Funds in New York. "It's not just, 'Is the Fed going to raise (its benchmark interest rate) up or down?'" It's 'Is the Fed going to keep buying $85 billion worth of bonds each month?'"
Analysts predicted that Bernanke would use his Wednesday news conference to cast a reassuring tone and make it clear that the Fed won't pull back on any of its programs until it's sure the economy can handle it. He's also likely to drop more hints about when the Fed could start trimming its stimulus programs. Some said that recent market volatility hasn't been caused by fear that the Fed will pull back on its stimulus programs — most everyone expects that to happen eventually. It's more because investors don't want to be surprised when it does.
Brian Doe, wealth adviser at Gratus Capital in Atlanta, described the Fed's policy announcements as "the big wind" that could push the market around.
"Right now the wind is not blowing," Doe said. "We have this little calm where everybody can be optimistic."
The Commerce Department reported that the pace of new home building increased in May, helped by more buyers coming to the market and a scarcity of houses for sale. Investors described the report as good enough to send the market up, but not good enough to force the Fed to start thinking that the economy is fine and abruptly slash its stimulus efforts.
The Labor Department reported that U.S. consumer prices rose last month, but only slightly. That's also likely to influence the Fed's decisions. The Fed knows that its stimulus programs can lead to inflation. If inflation is in check, however, that gives the Fed more leeway to continue the programs.
In other trading, the Dow Jones industrial average rose 138.38 points, or 0.9 percent, to 15,318.23. The Nasdaq composite index rose 30.05 points, or 0.9 percent, to 3,482.18.
The Russell 2000 rose 12.15 points, or 1.2 percent, to 999.99 — the closest it has ever come to breaking 1,000.
Among stocks making big moves:
—Hormel Foods, the maker of Skippy peanut butter and Spam, slipped after the company said it expects lower profits for the year. The stock fell $1.46, or 3.6 percent, to $39.19.
—Signet Jewelers, which runs the Kay Jewelers and Jared brands, rose after announcing that it plans to buy back up to $350 million of its ownstock. Signet rose $1.94, or 2.9 percent, to $69.91.
—Newfield Exploration was up after a Stifel Nicolaus analyst boosted thestock to "Buy" from "Hold." Shares of the oil and natural gas company rose 93 cents, or 4 percent, to $23.94.