NEW YORK It's all about the Fed. Still.
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, Tuesday was just a holding pattern as they waited for Wednesday's announcement.
The market gains were steady for most of the day.
The Dow Jones industrial average was up 138 points, or 1 percent, to 15,318. The Standard & Poor's 500 index finished up 12 points, or 0.77 percent, at 1,651. The Nasdaq composite index rose 30 points, or 0.9 percent, to 3,482.
The Russell 2000, an index of small-company stocks, rose 12 points, or 1.2 percent, to 999. The index hasn't closed above 1,000 before.
The vibe on Tuesday 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 guess how long it will keep supporting the U.S. economy.
"Inflation remains under control," observed a research note by PNC Financial Services Group. "With inflation low, the Federal Open Market Committee will maintain its highly aggressive monetary policy when it releases its statement on Wednesday."
The bank predicted that the Fed will start to reduce its purchases of long-term securities in the fall of 2013 -- also known as "tapering.
Some investors say it's troubling that the market is relying more on the central bank than economic fundamentals for direction. The latest turning point was May 22, when Fed Chairman Ben Bernanke startled markets when he said the central bank could pull back on its bond-buying program. That's where the Fed buys bonds to keep interest rates low and drive investors into the stock market.
"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. The Fed's investment 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 just 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 that 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 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 have to immediately slash its stimulus efforts.
U.S. consumer prices also last month, but only slightly. That's also likely to influence the Fed's decision. The Fed knows that its stimulus programs can lead to inflation. If inflation is in check, that gives the Fed more leeway to continue the programs.
Stocks were up throughout most of Europe, despite reminders that the economy there is still far from healed. European car sales hit their lowest level for the month of May in 20 years. In Greece, bickering continued over the prime minister's decision last week to shut down state TV in an effort to save money.