Stocks edge up on Fed stance
Wall Street managed a tiny gain Wednesday, enough to give the Dow Jones industrial average another record close, after the Federal Reserve kept interest rates unchanged for a third straight meeting.
The Fed’s Open Market Committee kept the nation’s benchmark rate steady at 5.25%, although it noted in its accompanying policy statement that readings on inflation had moved higher recently. Stocks waffled after the Fed’s decision was released as investors worried that inflation concerns could prompt the central bank to resume its rate increases in the future.
There may also have been some disappointment on Wall Street because “it’s not a sign that the Fed is going to be cutting rates anytime soon,” said Drew Matus, senior economist at Lehman Bros.
Still, the market held up well. There were few if any surprises in the Fed’s statement, which described the economy as likely to grow at a moderate pace after more than two years of rate increases.
“I think that the stock market, if it has one mind, is saying the soft landing is in place, that the Fed is on hold for a while,” said Jerry Webman, chief economist at Oppenheimer Funds.
“The stock market thinks the Fed just patted them on the back and said, ‘Go ahead, boys and girls,’ ” Webman said.
The Dow rose 6.80 points, or 0.1%, to 12,134.68. After the Fed announcement, the Dow reached another new intraday high of 12,147.97 before pulling back; it also set intraday and closing records the previous session.
Broader stock indicators also closed higher. The Standard & Poor’s 500 index rose 4.84 points, or 0.4%, 1,382.22, putting it at a nearly six-year high. The Nasdaq composite index rose 11.75 points, or 0.5%, to 2,356.59.
Bond yields fell sharply as the Fed sounded less hawkish about inflation risks than some bond investors had feared. Bond yields fall as their prices rise.
Treasury bond yields had risen in recent weeks as some Fed officials warned about the need to curb inflation. Although the Open Market Committee said some measures of inflation had risen, it also said inflationary pressures were likely to moderate partly because of the decline in energy prices in recent weeks.
“The market may have been gearing itself up for a more hawkish statement; that is why you are seeing some knee-jerk buying,” said Kevin Flanagan, fixed-income strategist for global wealth management at Morgan Stanley in Purchase, N.Y.
The benchmark 10-year T-note sank to 4.76% from 4.82% on Tuesday.
The market had little reaction to a report early in the session from the National Assn. of Realtors that said existing home sales had declined 1.9% to a seasonally adjusted sales pace of 6.18 million units, marking the slowest sales rate since January 2004. Also, the median price of a home registered a sharp drop.
Crude oil futures climbed $2.05 to $61.40 a barrel in New York trading after a weekly Energy Department report showed an unexpected drop in crude inventories. Sentiment has grown in recent days that production cuts by members of the Organization of the Petroleum Exporting Countries might help shore up oil prices. On Friday, prices for crude fell to their lows for the year.
In other markets highlights:
* Higher oil prices damped the outlook for consumer spending, sending a measure of S&P; 500 merchants down 0.7%. Nordstrom, the upscale department-store chain, fell $1.26 to $47.61. Best Buy, the largest U.S. electronics retailer, lost 81 cents to $54.53.
* General Motors fell $1.48, or 4.1%, to $34.71 despite reporting that its third-quarter loss narrowed as cost-cutting aspects of its turnaround plan began to take hold and as sales rose about 4%. The world’s largest automaker said its loss for the quarter was trimmed to $115 million, or 20 cents a share, from $1.7 billion, or $2.94, a year earlier.
* Altria rose $2.28, or 2.9%, to $82.10 after saying it expected to announce in January plans for a spinoff of Kraft Foods and despite reporting third-quarter results that came in slightly below Wall Street’s expectations.
* Boeing, like GM and Altria part of the 30 stocks in the Dow, fell $2.73, or 3.3%, to $80.86 after the No. 2 commercial aircraft maker behind Airbus saw its third-quarter profit fall 31% as the company recorded expenses to discontinue an in-flight Internet service.
* Amazon.com advanced $4.05, or 12%, to $37.68. After the close of trading Tuesday, the Internet retailer reported a stronger-than-expected third-quarter profit following a disappointing second quarter.
* Taser International, which makes stun guns, rose 25 cents, or 2.7%, to $9.45 after posting a sharp increase in third-quarter earnings.
* Corning slumped $2.04 to $21.10. Its 8.8% drop was the steepest in the S&P; 500. The world’s biggest maker of glass for liquid-crystal displays forecast fourth-quarter sales of as much as $1.33 billion. Analysts had predicted $1.36 billion.
