Bernanke’s Words Boost Stock Indexes
Major stock indexes closed mostly higher Thursday as Wall Street brushed aside concerns about a Chinese interest rate hike to focus on comments by Federal Reserve Chairman Ben S. Bernanke that a pause in U.S. rate increases may be ahead.
In trading pushed and pulled by the crosscurrents of earnings reports, fluctuating energy prices and international events, Bernanke’s comments overrode all other distractions, analysts said.
“What he’s coming through very clearly and saying is, ‘We will probably pause soon but don’t assume we’re done because we pause,’ ” said Jeff Kleintop, chief investment strategist for PNC Wealth Management.
The Dow Jones industrial average gained 28.02 points, or 0.3%, to 11,382.51.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index rose 4.31 points, or 0.3%, to 1,309.72, and the Nasdaq composite index rose 11.32 points, or 0.5%, to 2,344.95.
The gains in stocks offset early reaction to an announcement by Chinese officials that they will raise interest rates to slow that hot economy. China’s rapid growth has accounted for a sizable share of worldwide demand for raw materials and other goods, and the announcement pushed down prices for oil, commodities and European stocks.
The price of oil fell 96 cents to settle at $70.97 a barrel in New York trading. That came after the U.S. Energy Department said demand for gasoline rose just 0.3% in the last four weeks compared with the same period in 2005.
But momentum was reversed in U.S. equity markets after the start of congressional testimony by Bernanke.
Although the Fed chairman told Congress that rising energy prices could jeopardize a strong economy and lead to further rate hikes, the market chose to focus on comments suggesting a pause may be at hand.
“At some point in the future, the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook,” Bernanke said. “Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings.”
That was enough for stock bulls.
“The knee-jerk reaction [to China’s rate hike] was simply followed by money on the sidelines that said this is an opportunity to get in,” said Richard Cripps, chief market strategist for Stifel Nicolaus. “Then Bernanke’s comments just emphasized the larger issue that the market is trying to deal with, which is the Fed is going to get out of the way.”
Bernanke’s comments also boosted bond prices, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 5.07% from 5.11% on Wednesday.
The dollar fell to 114.08 yen, a three-month low. The greenback dropped a fifth straight day versus the euro, which rose to $1.253.
The markets’ rise Thursday reflects continued optimism among investors that the economy will remain strong, gradually slowing, while inflation stays in check. In the near term, investors will be keeping an eye on energy prices and on data including first-quarter economic growth figures to be released Friday and reports next week on personal spending, personal income and employment, analysts said.
“This market is just extremely resilient, and if we don’t get a major spike up in energy prices or interest rates from current levels, the strong earnings environment we find ourselves in could help carry the markets higher for several more weeks,” said Michael Sheldon, chief market strategist at Spencer Clarke.
In other market highlights:
* FirstEnergy and Bank of America led gains in utilities and financial companies, among the most sensitive to borrowing costs, after Bernanke’s testimony.
FirstEnergy, owner of electric utilities in Ohio, Pennsylvania and New Jersey, gained $1.45 to $50.89. Exelon, the No. 1 U.S. utility owner by market value, climbed 75 cents to $54.16. Duke Energy advanced 41 cents to $28.87.
The S&P; index of financial companies jumped 1.4% to a record. Stable or lower interest rates increase the value of bonds owned by banks, brokers and insurers and boost demand for mortgages and loans.
Bank of America rose $1.33 to $49.04. American Express gained $1.80, or 3.5%, to $53.70 for the best performance among the Dow industrials. JPMorgan Chase added $1.29 to $43.95.
* China’s move to raise interest rates pushed down the shares of many commodity producers on fears it will lower demand.
Alcoa, the world’s No. 1 aluminum producer, retreated $1.56, or 4.5%, to $33.40 for the steepest loss in the Dow average. Copper producer Phelps Dodge dropped $3.73 to $81.86. The company said first-quarter net income fell 14% on wrong-way bets on metal prices.
* Boeing, which aims to sell 120 planes in China this year, lost 81 cents to $84.10.
