Fed’s Decision Helps Drive Up Stocks
Stocks rallied sharply Wednesday on falling oil prices and growing speculation that interest rates have peaked.
Technology stocks led the advance after quarterly earnings at software giant Oracle beat analyst estimates. Financial companies rose after Morgan Stanley became the second brokerage in a week to report a record profit.
Federal Reserve policymakers, who left their key short-term rate unchanged at 5.25% for a second month after 17 increases, said in a statement that inflation was “likely to moderate over time.” Lower energy costs will help hold down prices, they said.
“We’re clearly seeing economic growth slowing, but at the same time now we’re not seeing the inflationary pressures that we feared,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Oil’s decline to a six-month low of $60.46 a barrel, from $61.66 on Tuesday, was “the largest ingredient” boosting stocks, he said.
Oil dropped after President Bush backed negotiations in a dispute over Iran’s nuclear program and a report showed a greater-than-expected increase in U.S. fuel inventories.
The Standard & Poor’s 500 index added 6.87 points, or 0.5%, to 1,325.18 -- just below the five-year closing high of 1,325.76 reached May 5.
The Dow Jones industrial average climbed 72.28 points, or 0.6%, to 11,613.19, nearing its six-year high of 11,642.65 reached May 10.
The Nasdaq composite gained 30.52 points, or 1.4%, to 2,252.89.
Stocks have rallied since the last Fed meeting Aug. 8 as inflation slowed and oil prices extended their retreat.
“The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market,” Fed policymakers said in a statement after their meeting.
Treasury yields were little changed, with the 10-year T-note holding steady at 4.73%.
Investors said the Fed statement lowered expectations that policymakers might cut rates by early next year.
“For folks hoping that you’d get a sign that we were closer to the beginning of the easing phase, there was nothing in the statement to suggest that,” said Doug Cliggott, chief investment officer at Race Point Asset Management in New York.
Evidence that price increases have been contained has helped push the S&P; 500 up 4.2% since Aug. 8. Still, a deepening housing slump has revived concerns that consumers will have less to spend, slowing the economic expansion.
News of a military coup in Thailand and anti-government demonstrations in Hungary had only a muted effect on stocks in many emerging markets.
In Asia, where the Thai market was closed, the Philippine market fell 2%. But South Korea’s main index lost a modest 0.6% and the Indonesian market was off 0.4%. India’s Bombay-500 index gained 0.9%.
Hungary’s main index tumbled 2.2% and Russia’s market was down 1.5%. But the Czech market was fractionally lower and Slovakia’s key index edged up.
In Latin America, Mexico’s IPC surged 0.8% to 21,841, a record high.
In other market highlights:
* Oracle surged $1.80, or 11%, to $17.93 for the biggest advance in the S&P; 500. Excluding some costs, first-quarter profit was 18 cents a share, beating the 16-cent estimate of Goldman, Sachs analyst Rick Sherlund. Sales jumped 30% in the period.
Citigroup Investment Research raised its recommendation on the stock to “buy” from “hold” and increased its price target to $23 from $18.50.
* A gauge of technology stocks jumped 1.7% for the best performance among 10 industry groups in the S&P; 500. Microsoft, the world’s biggest software company, climbed 32 cents to $27.18. Apple Computer, which makes the iPod digital-music player, gained $1.49 to $75.26.
Yahoo bucked the trend, losing 11 cents to $25.64. The Internet portal sank 11% on Tuesday after saying sales this quarter would be at the low end of its forecast on slower advertising demand.
* Financial services companies gained on the Fed’s decision to leave interest rates alone and on a strong earnings report from Morgan Stanley. The Wall Street powerhouse posted third-quarter profit of $1.75 a share, exceeding the $1.37 average estimate of analysts, on increased bond and commodities trading and higher revenue from brokers. Its shares climbed 50 cents to $72.35.
Goldman Sachs rose $3.21 to $166.60 and Bear Stearns jumped $4.28 to $139.50. Lehman Bros. Holdings, which last week reported its best third quarter since going public in 1994, advanced $1.11 to $71.79.
JPMorgan Chase, the third-biggest U.S. bank, gained 42 cents to $47.22. Legg Mason, the No. 2 U.S. money manager by market value, jumped $3.21 to $100.22.
* Boeing climbed $1.32 to $76.19. The defense contractor won the first piece of a $2.5-billion contract to secure the U.S. border, senior congressional staffers said. Boeing declined to confirm the deal, but said an announcement could come today or tomorrow.
* CarMax gained $3.16 to $43.30. The auto dealer said profit, excluding some items, increased to 46 cents a share, more than the estimate of 41 cents. CarMax also said 2006 earnings would exceed its forecast.
