Fed’s new phrasing lifts stocks
The Fed to the rescue?
The stock market surged Wednesday after the Federal Reserve hinted that additional interest rate increases might not be in the cards.
For a market battered in recent weeks by worries that recession risks were rising, the Fed’s apparent shift soothed many investors -- and stoked hopes that the central bank soon would be cutting rates.
“We’ve been waiting for the Fed to be on our side,” said Michael Mullaney, who helps manage $10 billion at Fiduciary Trust in Boston. “The Fed’s next move is probably going to be a cut and probably sometime no later than August.”
The Dow Jones industrial average soared 159.42 points, or 1.3%, to 12,447.52 -- its highest close since Feb. 26, one day before it plunged 3.3% amid economic jitters.
The broader market also was sharply higher, as winners topped losers by nearly 5 to 1 on the New York Stock Exchange.
In other trading, the euro jumped to a two-year high against the dollar on the prospect of lower U.S. interest rates. The dollar’s weakness is bad news for Americans who are planning a trip to Europe any time soon.
Analysts attributed some of the stock rally to “short covering” by traders who had expected prices to continue declining.
The NYSE said Wednesday that short sales -- stock borrowed and sold, typically in anticipation of lower prices -- reached a record 10.51 billion shares as of March 15, up nearly 10% from 9.6 billion in mid-February.
A surge in short sales generally is a sign that traders are bearish on the market’s direction. But if stocks suddenly rocket, as they did Wednesday, short sellers often rush in to buy shares to close out their bets. That can add fuel to any rally.
The market was virtually flat until late in the session, when Fed policymakers concluded their meeting and tweaked the wording in their official statement.
They dropped language used in recent months about “the extent and timing of any additional firming” they might do with interest rates, instead saying that “future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth.”
That was enough to convince some investors that the next rate move will be a cut. “This brings back a rate cut into the picture, and the market is very happy about that,” said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Ill.
The Standard & Poor’s 500 index jumped 24.10 points, or 1.7%, to 1,435.04, its biggest one-day gain since July 19.
The Nasdaq composite index gained 47.71 points, or 2%, to 2,455.92. It was Nasdaq’s largest gain since Oct. 4.
The Dow had dropped 736 points, or 5.8%, from its record high on Feb. 20 to its recent low on March 5. It now has recouped 54% of that decline.
Some analysts warned that sentiment could turn negative again if economic data in the next few weeks point to a deepening slowdown. That could raise the risk that the Fed wouldn’t be quick enough with rate cuts to forestall a recession.
But at least on Wednesday, the bulls were back in charge, spurred by a friendly Fed.
Among the day’s market highlights:
* The gains in the U.S. helped lift Mexico’s market 3% and Brazilian shares 2.9%. Early today in Asia, most markets were up strongly. The Shanghai composite index was at a record high.
* Every issue in the 30-stock Dow rose except Alcoa, which eased 22 cents to $33.85.
Financial-company stocks in the Dow and other indexes led the rally as concerns about the shaky housing and mortgage markets were damped.
Citigroup rose $1.39 to $52.03, JPMorgan Chase added $1.30 to $40.05, Countrywide Financial surged $1.73 to $36.95, Bear Stearns jumped $5.17 to $152.49 and hedge-fund operator Fortress Investment Group rallied $1.71 to $28.53.
* Home builders were broadly higher. KB Home gained $2.15 to $47.79 and Lennar was up $1.21 to $46.76.
* The tech sector got a boost from Oracle, which rose 62 cents to $18.17 on a strong earnings report, and Adobe Systems, which shot up $2.56 to $43.30 after sounding upbeat about sales.
* On the downside, FedEx fell $1.30 to $110.99 after the air-cargo carrier reported its first quarterly profit decline in three years as a slowing U.S. economy cut shipping demand.
* The euro jumped to $1.338, its highest since March 2005, from $1.331 on Tuesday. U.S. interest rate cuts could make the dollar less attractive to global investors. But the dollar was up modestly against the yen.
* Shorter-term Treasury yields slid. The two-year T-note fell to 4.53% from 4.60% on Tuesday. The 10-year T-note slipped to 4.54% from 4.55%.
* Near-term crude oil futures added 36 cents to $59.61 a barrel in New York, even though the government said U.S. crude inventories rose last week.
