NEW YORK, Aug. 12, 2009
Stocks Jump as Fed Raises View of Economy
Dow Shoots Up 120 Points after Central Bank Issues Optimistic Assessment of Economy
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Interactive Eye On The Economy In-depth features on U.S. markets, taxes, employment and the Federal Reserve.
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Stocks bounded higher Wednesday after the central bank said the economy appears to be "leveling out" rather than simply shrinking at a slower rate. The Fed's more positive take on the economy compared with its assessment in June wasn't surprising but it still bolstered hopes that the economy is in fact rebounding.
Wednesday's advance restarted the market's summer rally after a pause on Monday and Tuesday. Major market indexes jumped more than 1 percent, including the Dow Jones industrial average, which jumped 120 points.
Financial and technology shares posted some of the strongest gains after ratings upgrades and profit reports provided fresh evidence of a recovery. The stock market's advance was itself adding to bank and insurance stock gains — its climb means their investment portfolios are surging in value.
Investors drew reassurance from Fed policymakers' comments. The central bank left interest rates unchanged, as expected, following a two-day policy meeting.
"They did really endorse the fact that we're moving into recovery, not searching for the bottom," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Stocks have been rallying much of the past four weeks on expectations that the economy is strengthening.
The Fed also said it would slow the pace of its program to buy $300 billion worth of Treasury securities so that it will close at the end of October, rather than September as originally intended. The central bank has bought $253 billion of the securities so far. The program is designed to reduce rates on mortgages and other consumer debt.
"The fact that they are going to wind down the Treasury purchases I think leaves the clear impression that they are quite satisfied with the progress we are making in the recovery," McCain said.
But some analysts are skeptical that the market can maintain its climb even with the Fed's more optimistic words. The S&P 500 index is up 14 percent in little more than a month and 48.7 percent since it fell to a 12-year low in early March.
"I looks like a pretty sharp rise to me to have a lot of sustainability," said Dan Cook, senior market analyst at IG Markets in Chicago.
According to preliminary calculations, the Dow rose 120.16, or 1.3 percent, to 9,361.61. The Standard & Poor's 500 index rose 11.46, or 1.2 percent, to 1,005.81, while the Nasdaq composite index gained 28.99, or 1.5 percent, to 1,998.72.
Rising stocks outpaced those that fell 5-to-2 on the New York Stock Exchange, where volume came to a light 1.2 billion shares, flat with Tuesday. Light volume can skew price moves but is typical of late summer when many traders take vacations.
The gains came a day after the market posted its biggest loss in five weeks. The Dow fell 97 points as investors worried about the health of banks.
Investors found encouragement, however, from a range of industries.
Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Ill., said quarterly results from luxury homebuilder Toll Brothers and retailer Macy's Inc. could be signaling that consumption is increasing. That is key to a recovery because consumer spending accounts for more than two-thirds of U.S. economic activity.
Homebuilders jumped after Toll Brothers said 3 percent more homebuyers signed contracts in its fiscal third quarter, the first annual increase in four years.
Toll's statement that many of its markets are improving boosted confidence because analysts point to unemployment and housing as two of the biggest obstacles to a rebound. Toll jumped $2.94, or 14.4 percent, to $23.42.
Macy's reported a better-than-expected second-quarter profit and cited cost-cuts in raising its full-year earnings forecast. Macy's rose 93 cents, or 6 percent, to $16.40.
Insurers rose after S&P raised its credit outlook for Travelers Cos. The commercial and personal property insurer advanced $1.50, or 3.3 percent, to $46.43. It was the biggest gainer among the 30 stocks that make up the Dow industrials.
Tech stocks rose after Applied Materials Inc.'s fiscal third-quarter results topped analysts' expectations. The maker of equipment for manufacturing semiconductors rose 44 cents, or 3.3 percent, to $13.66.
Meanwhile, bond prices were mixed after an auction of $23 billion in 10-year Treasury notes saw demand in line with recent levels but down from last month. The Treasury Department is issuing a record $75 billion in three auctions this week. The third auction, for $15 billion in 30-year bonds, is Thursday.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.67 percent late Tuesday. Bond prices jumped Tuesday as stocks fell.
Investors have been tracking demand because a drop in buyers could force the government to increase its payout. The results rise in rates would raise borrowing costs and could slow a recovery.
The dollar was mixed against other major currencies, while gold rose.
Benchmark crude rose 71 cents to settle at $70.16 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 10.05, or 1.8 percent, to 572.17.
Overseas, Britain's FTSE 100 rose 1 percent, Germany's DAX index added 1.2 percent, and France's CAC-40 jumped 1.5 percent. Japan's Nikkei stock average fell 1.4 percent.
© MMIX The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Add a Comment See all 20 Comments
- "That's a whole lot of alcohol and illicit drugs speaking."
The standard fascist response to anyone that expresses their opinion.
They left out "kool aid drinkers", "take your meds", and "typical socialist liberal".
Very intelligent debate from the right wingers and very interesting comebacks that are totally original. - Reply to this comment
- Great news. Hopefully the wall street manipulators can jack up gas prices to 4.00 a gallon because of the "good news"!
This makes me so happy.
Please Washington, please don't try and stop them from ripping us off we have come to love it. - Reply to this comment
- ItsNotRocketScience August 12, 2009 11:46 PM EDT
"the economy will not rebound until jobs are created. the rich on Wall Street trading money and the rich shopping at Macy's helps whom?"
Jobs do not need to be created to get out of a recession. As confidence and spending improves, factory orders go up. Further, people start investing again and people start making major purchases for cars and homes. The last piece of the puzzle is employment which goes up when employers see the need to expand as the economy improves. Even now, in the midst of a recession, 90% of the people are working. Normal unemployment is considered around 5%. Do the math. That leaves approximately 5% more people without jobs than under normal circumstances. That is just 5% less than what is considered full employment under the best of times. - Reply to this comment
- by specialty8 August 12, 2009 5:21 PM EDT
Bushes Policies are still working and he has been gone for six months. Thank GWB. Even Turbo Timmy could not screw this up,well not yet anyway.
That's a whole lot of alcohol and illicit drugs speaking.
It's the ONLY explanation for someone to post such a ridiculous comment. - Reply to this comment
- It's not Obama or Bush. It's not dems or reps. It's not libs or cons.
It's a continuing raid on the American peoples coffers. Until you stop this foolish bickering, you'll never see it.
Another economic bubble is forming. Equity markets are up 50% from March. The Charade players are waiting for you to jump in. They don't care if your a lib or con, dem or rep, they just want to keep you fighting among yourselves so they can reap another harvest.
SUCKERS! Knock it off and open your eyes! The guilty parties are NOT who you think they are. - Reply to this comment
- Interesting - most of the right-wing extremists don't have anything to say, and this story has been up for hours...
As a Centrist, I applaud the upturn, and hope it continues. - Reply to this comment
- Poor, poor neo cons.
They tried SO HARD to collapse the economy, but didn't quite succeed. (Close - but not quite.)
Now as the economy recovers under a democratic president - as usually happens when a republican leaves office - all they can do is cry and whine about how Obama is killing America, while EVERY ECONOMIC INDICATOR says different.
So sad. Pathetic really. - Reply to this comment
- One of the biggest factors in the economic picture is investor confidence. When it goes up, demand for stocks rises, investors make money, they have more capital to invest, businesses have more capital available, demand for products that are not necessities rises, it will be easier for businesses to borrow money and they can hire more people. As long there is steady growth, the economic picture will look a lot better in 2010 and 2012, which should favor the Democrats. It doesn't need to be a spectular spurt or series of spurts...just steady growth. The taxpayers stand to make a healthy profit on several of the businesses that the government bought equity shares in as the prices of their stocks rise. By and large, most of the financial institutions are going to pay the TARP money back over time and some have already done so. Several formerly troubled financial institutions are now showing a healthy profit. Home sales and prices are beginning to rise again. Many of the government-funded construction projects that will be funded by stimulus money are still in the design stage and will be awarded as construction contracts later. The market for business real estate will be one of the last markets to turn around, but if and when that does, that will be the sign that the recovery is here to stay for a while...and then hiring will really pick up. In the future and at a politically opportune time, there could always be a modest targeted business tax cut or two. Strategically at least, the Democrats won't be in too bad a shape when the next two rounds of elections happen...provided that recent trends continue.
- Reply to this comment
- Bushes Policies are still working and he has been gone for six months. Thank GWB. Even Turbo Timmy could not screw this up,well not yet anyway.
- Reply to this comment
- We need to get rid of Wall Street.
- Reply to this comment
- Oh, that's gotta tick off the neocons.
It's all good! Thank you Mr. President! - Reply to this comment
- Thanks GWB. Lets hope the Obama stimulis will start to do something for a change.
- Reply to this comment
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- sure....
Kaiser Permanente will eliminate 650 jobs in Southern California over the next few months as the nonprofit health system contends with the recession and braces for cuts in federal funding, a Kaiser spokesman said yesterday.
The workers received notices of potential termination yesterday, but many of them will be allowed to fill vacant positions within Kaiser, spokesman Jim Anderson said.
- Excuse me what country are we living in...I am not seeing no relief from this economy what so ever.
then why do we need to extend our unemployment benefit eh...
- sure....
