Stocks Soar on Rate Hopes
The stock market streaked higher Wednesday after comments from Federal Reserve Chairman Ben S. Bernanke renewed hope on Wall Street that the central bank would soon stop raising interest rates.
The market also got a boost from a third straight day of falling oil prices and generally strong corporate earnings reports, which eased recent fears that rising interest rates could torpedo economic growth.
The Dow Jones industrial average surged 212.19 points, or 2%, to 11,011.42. It was the biggest gain for the blue-chip index since a 217-point advance June 29 -- the day of the last Fed meeting, when investors also reacted to an anticipated end of Fed credit-tightening.
The technology-heavy Nasdaq composite index rose 37.49 points, or 1.8%, to 2,080.71, despite the drag from a plunge in Yahoo shares after the Web giant reported weaker-than-expected second-quarter revenue.
The blue-chip Standard & Poor’s 500 index rallied 22.95 points, or 1.9%, to 1,259.81.
Smaller stocks fared even better, with the Russell 2,000 index advancing 3%.
Winners outnumbered losers, 6 to 1, on the New York Stock Exchange in active trading. Winners had a 3-to-1 edge on Nasdaq.
Treasury bonds also staged a powerful rally, with the yield on the benchmark 10-year T-note dropping to 5.05% from 5.13%.
Markets were buoyed by Bernanke’s testimony to the Senate Banking Committee. While he noted that inflationary pressures remain a concern, the Fed chief said a moderation of economic growth is taking place.
Some investors took his words to mean that the central bank soon would at least pause in its 2-year-old rate-hiking campaign, although many economists still expect one more quarter-point increase in the Fed’s key short-term rate, to 5.5%, when policymakers meet Aug. 8.
“The market is heaving a sigh of relief that the Fed appears close to the end of its tightening campaign,” said Stuart Schweitzer, global markets strategist at J.P. Morgan Asset and Wealth Management in New York.
Amid fragmentary but increasing evidence of a U.S. economic slowdown, investors have fretted that rising interest rates could tip the economy into recession.
Those concerns triggered a sharp pullback in stocks worldwide from mid-May to mid-June.
Last week, another surge in oil prices deepened fears of economic trouble.
Crude prices jumped to record levels on Friday amid worsening violence between Israel and Hezbollah militants in Lebanon. The Dow sank 3.2% for the week.
But oil prices have been declining since Friday. Near-term futures in New York fell 88 cents to $72.66 a barrel Wednesday.
The price has dropped $4.37 from Friday’s record of $77.03.
Government data on Wednesday showed an unexpected rise in U.S. oil and gasoline inventories last week, easing concerns about supplies.
Better-than-expected profit reports from banking giant J.P. Morgan Chase, IBM and other big-name companies helped lift the market early in the day, before Bernanke spoke.
Despite the powerful rally, analysts were split on how soon the Fed might end its rate-tightening cycle, and on whether the economy and the stock market would hold up in the second half of the year.
Several experts said the market swoon in May and June appeared to have run its course. But they predicted that stocks would remain volatile until the economy stakes out a clear direction.
Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, noted that stocks have rallied several times in recent months on speculation that the Fed was done, only to fall back when inflationary pressures resurfaced.
Recent signs of waning economic growth would hurt corporate earnings and stock prices later in the year, he said.
“It’s a ‘Fed-almost-done’ rally,” Boockvar said. “I’ve lost count of how many of them we’ve had.”
John Bollinger, head of Bollinger Capital Management in Manhattan Beach, said investors have repeatedly underestimated the vigor of the U.S. economy, and of corporate earnings.
But bulls will have to assert themselves strongly in the next few weeks to make a convincing case for a sustainable rally, he said.
“The question is, can the bulls really take the ball and do something with it this time?” Bollinger said.
Among Wednesday’s market highlights:
* The rally was led by shares of companies in industries that are most sensitive to the economy’s swings. Many of those issues have tumbled recently.
Mining firm Rio Tinto jumped $14.50 to $207.50, farm machinery maker Deere surged $2.62 to $75.47 and construction materials producer Florida Rock gained $2.45 to $45.63.
* Bank stocks were strong amid robust earnings reports in the group. JP Morgan Chase rose $2.34 to $43.05 and Wells Fargo rallied $2.58 to a record $70.83.
* Airlines gained as oil continued to fall. Alaska Airlines added $1.44 to $36.57; Continental jumped $1.91 to $30.56.
* IBM led the battered tech sector higher, rising $1.81 to $76.07. But Yahoo sank 22%, falling $7.04 to $25.20, after the Internet search company late Tuesday posted disappointing quarterly results and announced a delay in the rollout of new advertising software.
* European stocks soared at the end of their trading day, as Wall Street opened. The German market gained 2.6% for the day; French shares rose 2.4%.
Latin American markets also got a lift from the U.S. rally. Mexican stocks rocketed 5.2%. The Brazilian market jumped 4.7%.
