U.S. stocks rally on Fed comments
Tuesday September 21, 3:06 pm ET
By Susan Lerner
NEW YORK (CBS.MW) - Stocks rallied Tuesday afternoon as investors applauded comments from the Federal Reserve that the economy appears to have "regained some traction."
The Dow Jones Industrial Average (^DJI - News) was last up 56 points, or 0.6 percent, to 10,261, while the Nasdaq Composite Index (NasdaqSC:^IXIC - News) added 16 points, or 0.9 percent, to 1,924 and the S&P 500 (CBOE:^SPX - News) rose 9 points, or 0.8 percent to 1,131.
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"This is a positive for the market. The Fed is saying that the economy is going to strengthen and that inflation is low, which indicates stronger growth ahead," said Peter Cardillo, chief market analyst at S.W. Bach.
In its third hike this year, the Federal Open Market Committee raised the fed funds rate to 1.75 percent from 1.50 percent while the statement that accompanied the announcement repeated that rate hikes can proceed at a measured pace.
Others didn't get all they had hoped for from the Fed comments, however.
"I was a little disappointed that they did not change their orientation -- they have this perpetual belief that the economy will recover sharply once energy prices fall" said Ned Riley, chief investment strategist at State St. Global Advisors. "I believe this economy is slowing more on a natural basis than an extraneous effect basis."
Treasury prices were trading modestly lower in the wake of the Federal announcement. The benchmark 10-year note fell 7/32 to 101 9/32 to yield 4.09 percent, up from 4.06 percent at Monday's close.
The dollar extended its modest gain against the Japanese yen and pared briefly its decline against the euro in the wake of the news. The dollar was quoted at 110.05 yen vs. 109.94 yen just before the announcement; up about 0.2 percent from Monday's U.S. trading. The euro fell to $1.2249 vs. $1.2277, but has since returned to its pre-Fed level. The dollar remained down 0.8 percent against Europe's shared currency compared to Monday. See Currencies.
The spotlight on the Fed announcement overshadowed a series of warnings in the technology sector and better-than-expected earnings from Lehman Bros. and Goldman Sachs.
"When you look at the trade-off between the pre-announcements and the Fed, I think right now the Fed's influence is obviously superceding any of the individual company fundamentals," Riley said.
ExxonMobil (NYSE:XOM - News) and JPMorgan Chase (NYSE:JPM - News) were the best blue-chip performers, up 2 percent and 1.4 percent, respectively.
Altria Group (NYSE:MO - News) led the Dow's decliners, tallying a 2.1 percent loss as the Justice Department kicked off opening arguments in its civil racketeering case against cigarette makers. See related story.
Also within the Dow, American International Group (NYSE:AIG - News) shed 1.1 percent after it said the Securities and Exchange Commission is considering civil enforcement action against the insurer and its AIG Financial Products unit over alleged securities violations in 2001.
In broader market, advancers led decliners by 21 to 11 on the New York Stock Exchange and by 18 to 11 on the Nasdaq. Big Board volume was about 780 million shares, while some 940 million shares traded on the Nasdaq.
Lehman and Goldman kicked off earnings season for the brokers with better-than-expected profit reports.
Lehman reported fiscal third-quarter earnings of $1.71 a share, topping the average analyst estimate as compiled by Thomson First Call of $1.55, while revenue rose to $2.62 billion, also better than analysts' forecasts of $2.54 billion.
Goldman posted earnings $1.74 a share on revenue of $4.5 billion, well ahead of the average forecasts of analysts calling for earnings of $1.42 a share and revenue of $4.12 billion. Read more.
Lehman shares lifted 4.3 percent, while Goldman rose 2.7 percent.
The Amex Securities Broker/Dealer Index (AMEX:^XBD - News) climbed 2 percent.
The good news from the brokers came in the face of a raft of negative news from the technology sector, however.
PalmOne (NasdaqNM:PLMO - News) outpaced fiscal first-quarter expectations but provided a disappointing outlook for the second quarter, and a handful of tech companies -- Integrated Silicon Solution (NasdaqNM:ISSI - News) , Silicon Storage Technology (NasdaqNM:SSTI - News) , Power Integrations (NasdaqNM:POWI - News) , Teradyne (NYSE:TER - News) and RF Micro Devices (NasdaqNM:RFMD - News) -- all warned about their upcoming results.
Red Hat (NasdaqNM:RHAT - News) , meanwhile, topped earnings expectations for its fiscal second-quarter, but revenues fell short. The stock, downgraded to "neutral" at UBS, tumbled 14 percent. See story.
Adobe Systems (NasdaqNM:ADBE - News) , however, outpaced its previously raised third-quarter financial targets due to strong demand. The graphics software company's shares added 4 percent.
In the latest economic news, the Commerce Department said August housing starts rose 0.6 percent to a seasonally adjusted 2 million annual pace, better than economists' expectations for a decline to 1.92 million. Building permits declined, however. See Economic Report.
In the commodities market, gold futures closed at their highest level in three weeks ahead of the FOMC's rate decision. Gold for December delivery traded as high as $412 an ounce on the New York Mercantile Exchange, its highest level since Sept. 1 before closing up $3.10 at $410.10 an ounce. See Metals Stocks.
Crude futures held on to their gains after the decision as traders bet on a big drop in U.S. inventories to be reported Wednesday. October crude traded at $47.08 a barrel on the Nymex, up 73 cents. See Futures Movers.
