Stocks close solidly higher on hopes the Fed won’t raise interest rates this month
Stocks surged Monday on Wall Street after a Federal Reserve official said the central bank shouldn’t raise interest rates too soon, which came as a big relief to investors. After Friday’s market nosedive, investors bought safe investments such as household goods makers and phone companies. Technology companies also jumped.
Stocks started the day lower, but they soon rallied. Investors were pleased when Lael Brainard, a member of the Federal Reserve board, said the Fed shouldn’t raise interest rates quickly because that could hurt the economy. The biggest gains went to traditionally safe investments that pay big dividends because they are more enticing to investors when interest rates and bond yields are low.
Stocks plunged Friday after remarks from another Fed official that suggested interest rates could go up next week.
David Kelly, chief global strategist for JPMorgan Funds, said he thinks that Federal Reserve policymakers seem “noncommittal” and aren’t sure if they should raise interest rates now. In his opinion, the Fed’s cautious attitude toward raising interest rates even a little is causing strong market reactions.
“The more cautious they are, the more sensitive the market becomes,” he said. “What’s one quarter of 1%? It’s nothing.”
The Dow Jones industrial average jumped 239.62 points, or 1.3%, to 18,325.07. The Standard & Poor’s 500 index rose 31.23 points, or 1.5%, to 2,159.04. The Nasdaq composite surged 85.98 points, or 1.7%, to 5,211.89.
The gains in the main three U.S. indexes made up for more than half of Friday’s losses.
As investors sought safe-play picks, retail giant Wal-Mart rose 2.3% to $71.94 and Procter & Gamble climbed 2.3% to $88.25. Phone companies also rose: AT&T advanced 2.5% to $40.71. Those stocks took some of the biggest losses Friday.
Banks, however, lagged behind the overall market as investors tried to figure out if interest rates will start to rise soon. Wells Fargo slipped 0.4% to $48.54.
HP agreed to buy Samsung’s printer business for $1.05 billion, and HP stock rose 3.9% to $14.49. That helped take technology stocks higher. Apple rose 2.2% to $105.44 and communications chip maker Broadcom went up 2.3% to $164.48.
Canadian companies Agrium and PotashCorp of Saskatchewan agreed to combine into the world’s largest crop nutrient company. The companies value their combined business at $36 billion, and Potash shareholders are to own a majority of stock in the new company. Potash stock fell 1.2% to $16.76 and Agrium sank 2.7% to $92.64.
Markets overseas took sharp losses Monday following Friday’s rout in the U.S. Germany’s DAX fell 1.3%. The CAC-40 in France lost 1.2%. The FTSE 100 index of leading British shares gave up 1.1%. Japan’s benchmark Nikkei 225 index lost 1.7% and South Korea’s Kospi slid 2.3%. In Hong Kong the Hang Seng shed 3.4%.
U.S. stocks plunged late last week after Federal Reserve Bank of Boston President Eric Rosengren said there’s a case to be made that the Fed should raise interest rates sooner rather than later. Rosengren and Brainard have both been reluctant to raise rates too quickly.
Investors are not sure if the central bank will raise interest rates, and they’re not sure the economy is healthy enough to handle that. Higher rates threaten stocks by making interest-paying savings accounts and bonds more attractive to investors. They could also ding corporate earnings by raising companies’ borrowing costs.
Irish drugmaker Perrigo jumped 7.3% to $95.23 after activist investment firm Starboard Value bought a 4.6% stake in the company. Starboard said Perrigo needs to boost profit margins for some divisions and noted that Perrigo’s stock hasn’t done well since the company rejected an offer from competitor Mylan. Perrigo said it will review Starboard’s comments.
U.S. crude rose 41 cents to $46.29 a barrel in New York. Brent crude, the benchmark for international oil trading, climbed 31 cents to $48.32 a barrel in London.
Energy Transfer Pipeline fell 3% to $37.95. On Friday a federal judge ruled that the company can build a $3.8-billion pipeline intended to carry oil from North Dakota to Illinois. That sent the company’s stock higher. But the federal government stepped in to temporarily stop part of the project, and several agencies said they would reconsider their decisions supporting it.
The Standing Rock Sioux tribe wants to stop construction of part of the pipeline because it crosses sacred sites and approaches a lake that provides drinking water for a reservation in southern North Dakota.
In other energy trading, wholesale gasoline rose 3 cents to $1.39 a gallon. Heating oil rose 1 cent to $1.44 a gallon. Natural gas jumped 12 cents, or 4.2%, to $2.92 per 1,000 cubic feet.
Gold fell $8.90 to $1,325.60 an ounce. Silver fell 37 cents, or 1.9%, to $19 an ounce. Copper rose 1 cent to $2.10 a pound.
Bond prices rose. The yield on the 10-year Treasury note fell to 1.67% from 1.68%. The dollar fell to 101.84 yen from 102.69 yen. The euro rose to $1.1241 from $1.1228.
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UPDATES:
4:35 p.m.: This article has been updated with additional information.
1:15 p.m.: This article has been updated with the closing of markets.
9:20 a.m.: This article has been updated with more recent market information.
This article was originally published at 7 a.m.
