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Stocks up before key Fed meeting

David Russell (david.russell@optionmonster.com)

Stocks are climbing gingerly before one of the most important Federal Reserve meetings in years.

S&P 500 futures are up less than 0.1 percent, while Europe rose about 0.5 percent. Asian trading was modestly bullish in the overnight session, with Tokyo advancing more than 1 percent while other indexes were little-changed.

The S&P 500 has declined in only two of the last 14 sessions despite worries that the Fed will reduce bond purchases under its program of quantitative easing. Concerns about so-called tapering have driven bond yields to their highest levels in more than two years. Investor confidence has remained buoyant nonetheless thanks to an improving global economy. Equities are also underowned historically, causing money to migrate from bonds into the stock market.

Price action has reflected a sense of optimism in the last two weeks, according to our researchLAB market scanner. It shows strength in telecom equipment providers, ocean shipping companies, steelmakers, casino operators, car-rental stocks and emerging markets. All of those stand to benefit from a strong economy.

The Fed has been buying $85 billion of debt securities a month. A reduction of $10 billion would likely be interpreted as dovish, potentially causing interest rates to decline and possibly triggering a rally in equities. A number closer to $20 billion could have the opposite effect.  The Fed's big decision comes at 2 p.m. ET, followed by a press conference 30 minutes.

In addition to the Fed, housing starts and building permits will be announced at 8:30 a.m. ET. Weekly mortgage applications already came out and showed an 11 percent gain after a short-term decline in interest rates.

Currencies are essentially flat, but commodities reflect a mild sense of bullishness toward the global economy. Copper and West Texas Intermediate crude oil rose about half a percent, while most agricultural products are also drifting higher. Gold and silver, however, are down about 1 percent as investors worry that a hawkish Fed will reduce the appeal of precious metals.

In company-specific news, Adobe Systems rose about 6 percent on further evidence that it's successfully transitioning customers to its cloud-based subscription model. FedEx climbed more than 2 percent after earnings and revenue beat forecasts. Dollar Tree and Microsoft are also up slightly after announcing stock buybacks. Software giant Oracle is scheduled to announce results after the closing bell this afternoon.

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