Interest rate news sends US stocks soaring
Stocks soared today on news that Federal Reserve policymakers believed their run of interest rate hikes is probably nearing an end, propelling the Dow Jones industrials up nearly 200 points.
The report helped offset the effects of oil prices that passed 71 dollars a barrel.
Wall Street was already climbing in mid-afternoon when the Fed released minutes of the Federal Open Market Committee’s March 27-28 meeting that showed most of the panel’s members ”thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy”.
The release of the minutes was just what an interest rate-weary market wanted to hear. The Fed has raised rates 15 times in a row since June 2004, putting the nation’s benchmark rate at 4.75%.
Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors in Albany, New York, said: “When it appears as though the governors of the Federal Reserve believe that the end of the rate increases is near, that’s very good news for investors.
“A lack of ambiguity from the Federal Reserve is always a little bit of a shocker.”
The Dow Jones industrial average gained 194.99, or 1.76%, to 11,268.77.
Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 22.32, or 1.74%, to 1,307.65, and the Nasdaq composite index rose 44.98, or 1.95%, to 2,356.14.
Traders had already taken comfort from the Labor Department’s report that core wholesale inflation, which excludes volatile energy and food prices, rose just 0.1% last month.
Overall inflation rose 0.5%, the fastest pace in three months, after a 1.4% drop in February. However, the core number indicated that the effects of higher oil are not making their way throughout the economy.
Any sign of rising inflation has sent stock prices falling, as fighting inflation has been the Fed’s primary concern. However, while the economy has been expanding, inflation has been under control.
With some reassurance from the Fed, investors are likely to focus more on earnings, which are cascading in this week and next.
If company results show they have managed to weather higher prices for energy and other commodities, Wall Street could have the incentive to continue a rally started last month but put on hold in recent weeks.
At the same time, the Fed minutes showed policy makers are not giving up their inflation watch.
“Members also recognised that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance,” the minutes stated.
The threat of inflation was evident in the continued surge of energy prices. The rise, caused by increasing tension over Iran’s nuclear energy programme and worries about disruption to supplies from Nigeria, pushed crude to a record close of 71.35 dollars on the New York Mercantile Exchange.
But stock investors, calmed by past experience, appeared to be looking past the price of crude, analysts said.
“We have seen it before and that’s the key. It’s not a new level and we didn’t really see demand taper off, we didn’t really see economic activity slow down because of it,” said Steven Goldman, chief market strategist, Weeden & Co. in Greenwich, Connecticut.
“A year ago we thought 70 dollars would be the death knell for consumers. It wasn’t.”
Energy stocks rose on oil prices. Shares of Exxon Mobil Corp. rose 1.69 dollars, or 2.7%, to 63.74 dollars. Valero Energy Corp. gained 1.78 dollars, or 2.7%, to trade at 67.43 dollars.
Other gainers included Merrill Lynch & Co. Inc, which reported sharply lower first-quarter earnings but still beat analyst estimates. Merrill rose 92 cents, or 1.2 percent, to 79.38 dollars.
Johnson & Johnson also rose, up 48 cents to 58.13 dollars, after the health products company reported a 17% increase in first-quarter profits, just beating estimates.
IBM Corp. added 1.67 dollars, or 2.1%, to close at 83.31 dollars. Shortly after the bell, the company announced quarterly results that topped expectations. In after hours trading, its shares declined 32 cents to 82.99 dollars.
Yahoo Inc also closed higher, up 33 cents, or 1.1%, at 31.30 dollars. The company reported quarterly earnings shortly after the market closed, and in after-hours trading, its shares gained a penny to trade at 31.31 dollars.
Advancing issues outnumbered decliners by a nearly 4-to-1 ratio on the New York Stock Exchange, where volume came to 1.38 billion shares, up from 957.50 million shares traded at the same point on Monday.
The Russell 2000 index of smaller companies was up 20.34, or 2.7%, to 769.81.
