Stocks up on Fed stance
The stock market ended an erratic day with modest gains Wednesday, after the Federal Reserve left interest rates unchanged and issued a mixed assessment of the economy.
The Fed pointed to a few positive signs, including “some firming in household spending.” But it also said that persistently rising energy prices were likely to limit growth as well as quicken inflation, which remains a major concern for the central bank.
As expected, the Fed ended its two-day meeting by keeping its key interest rate at 2%, marking the central bank’s first meeting in 10 months that didn’t end with a rate cut. Last summer, the key rate was above 5%.
The economy is at a crucial juncture, said Quincy Krosby, chief investment strategist for Hartford Financial Services Group. There are still big credit troubles at the nation’s major banks, the job market has been deteriorating for several months and home prices are still tumbling. To raise rates prematurely could cause such trends to worsen, she said.
“The goal of the central banks is to get us through this as smoothly as possible, but this is not a science; it is an art form,” Krosby said. “This is as delicate as it gets.”
Barring another sharp rise in unemployment or a dramatic drop in gross domestic product, the Fed seems to be leaning toward raising rates again, she said. “Nonetheless, they’ve left the window open for a cut if need be.”
The Dow Jones industrial average closed at 11,811.83, up 4.40 points, after being ahead more than 100 points shortly after the Fed announcement.
Broader stock indicators logged stronger gains. The Standard & Poor’s 500 index climbed 7.68 points, or 0.6%, to 1,321.97, and the Nasdaq composite index jumped 32.98 points, or 1.4%, to 2,401.26.
The Russell 2,000 index of smaller companies rose 8.38 points, or 1.2%, to 716.30.
On the New York Stock Exchange, advancing issues outnumbered decliners by more than 2 to 1.
Government bond yields finished mixed after the rate decision. The yield on the 10-year Treasury note rose to 4.10% from 4.08% late Tuesday.
Crude oil fell $2.45 to $134.55 a barrel on the New York Mercantile Exchange. Gold prices also slid, while the dollar weakened against most other major currencies.
Some investors were relieved that the Fed had not talked tougher on inflation.
“I think it was a conscious effort, probably, to hold down expectations that they are going to immediately start fighting inflation and look to raise interest rates,” said Bruce McCain, chief investment strategist at Key Private Bank.
Similarly, European Central Bank President Jean-Claude Trichet said Wednesday that investors shouldn’t necessarily expect a series of interest rate hikes in the coming months. Although the European bank is expected to raise rates at its July 3 meeting, Trichet said he wouldn’t “pre-commit” to rate hikes beyond that.
One reason the Dow lagged behind the S&P; and Nasdaq was a sharp drop in Boeing after Goldman Sachs downgraded it to “sell” on concerns that high fuel prices and economic weakness would hurt the aircraft maker’s orders. The stock sank $5.15, or 6.9%, to $69.64, its lowest level in more than two years.
In other market highlights:
* Financial stocks in the S&P; 500 initially rose as much as 3.4% as a group but retreated, finishing with a 0.4% gain, after the Fed said credit conditions remained tight.
* Research in Motion shares tumbled 9% to $129.61 in after-hours trading. The BlackBerry maker reported increases in quarterly profit and revenue that fell just short of Wall Street expectations.
* European stocks surged. Britain’s FTSE 100 rose 0.6%, while key indexes advanced 1.3% in Germany and 1.4% in France. Shares in Japan slipped 0.1%.
