U.S. Stocks, Gold, Euro Gain as Fed Keeps Plans for Low Rates
The Standard & Poor’s 500 Index rallied to an almost three-year high and Treasuries fell as the Federal Reserve renewed its pledge to stimulate growth with low interest rates and said a pickup in inflation is likely temporary. Gold gained and the dollar weakened versus the euro.
The S&P 500 added 0.6 percent to 1,355.66 at 4 p.m. in New York. The Russell 2000 Index (RTY) of small U.S. stocks jumped to a record and the Nasdaq Composite Index reached a 10-year high. The dollar lost 0.9 percent to $1.4782 against the euro, falling for a seventh-straight day in its longest slump in two years, and gold futures surged as much as 1.8 percent to a record $1,530.70 an ounce. Ten-year Treasury yields rose five basis points to 3.36 percent. Oil advanced 0.5 percent.
Stocks reversed earlier declines as Fed policy makers agreed to finish $600 billion of bond purchases on schedule in June and keep their benchmark interest rate at a record low for an extended period as the economic recovery proceeds at a “moderate pace.” The statement eased concern that central bankers were preparing to unwind record stimulus measures in an effort to prevent an acceleration in inflation.
“The Fed isn’t ready to press the brakes just yet,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $45 billion. “They’re maintaining the status quo while the economy, and in particular the consumer, gets on firmer footing. An accommodative Fed is good for equity markets and the statement doesn’t suggest the Fed’s anywhere close to taking steps to slow the economy through tightening.”
“Extended period suggests it would be a couple meetings, probably, before action,” he said in his first press conference following a policy meeting. He added that he’s unsure when tightening would begin.
The Fed cut its 2011 economic growth forecast because of a projected slowdown in the first quarter. The range of estimates for growth this year was cut to 3.1 percent to 3.3 percent, from 3.4 percent to 3.9 percent in January. A measure of inflation will rise between 2.1 percent and 2.8 percent this year before moderating, the central bank said.
The S&P 500 yesterday climbed to the highest level of the bull market that began in March 2009 for the first time since February as higher-than-estimated profits bolstered optimism. Per-share earnings have exceeded analysts’ estimates at 77 percent of the 197 companies in the S&P 500 that have reported results since April 11, according to data compiled by Bloomberg.
Amazon.com Inc. (AMZN) rose 7.9 percent to $196.63, the highest closing price since the company went public in 1997, as the largest online retailer’s sales topped estimates and Deutsche Bank AG lifted its share-price estimate to $215 from $192.
General Electric Co. added 2.7 percent to lead the Dow Jones Industrial Average up 95.59 points, or 0.8 percent, to 12,690.96, its highest level since May 20, 2008. GE, the world’s largest maker of jet engines and turbines for power plants, expects to “continue to grow the dividend,” Chief Financial Officer Keith Sherin said at the company’s annual meeting.
Corning Inc. (GLW), the largest maker of glass for flat-panel televisions, jumped 2.3 percent after earnings topped estimates.
Savvis Inc. (SVVS) increased 9.1 percent after CenturyLink Inc. agreed to buy the company for $2.5 billion to add so-called cloud-computing services for business customers. Johnson & Johnson agreed to buy Synthes Inc. (SYST) for $21.3 billion, adding devices to treat bone fractures and trauma in the biggest purchase in the company’s 125-year history. J&J gained 1 percent, while Synthes was little changed in Switzerland.
Equities started the session higher today after U.S. durable-goods orders rose in March for a third month, advancing 2.5 percent, the Commerce Department said. Economists surveyed by Bloomberg News predicted a 2.3 percent increase.
U.S. five-year yields were one basis point higher at 2.01 percent after the U.S. sold $35 billion of the notes.
The dollar weakened versus 14 of 16 major peers, losing at least 1.2 percent versus the South African rand and Swedish krona. The yen fell versus all 16 of its most-traded peers after S&P cut the outlook on Japan’s credit rating to “negative.”
Default Swaps Drop
The cost of protecting U.S. corporate bonds from default held at the lowest level in more than a month after the Fed’s statement. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 1.1 basis point to a mid-price of 91.63 basis points, according to index administrator Markit Group Ltd.
The Stoxx 600 Europe Index climbed 0.3 percent as three stocks advanced for every two that declined. Ericsson AB surged 11 percent after first-quarter profit more than tripled, and Volkswagen AG (VOW) jumped 6 percent. Porsche SE rallied 5.9 percent after its car-making division reported increased income. Barclays Plc (BARC), the U.K.’s third-biggest lender by assets, sank 4.8 percent after earnings missed estimates.
The pound strengthened 0.9 percent against the dollar, erasing losses of as much as 0.3 percent after a report showed gross domestic product expanded 0.5 percent in the first quarter, matching the median estimate in a Bloomberg survey of economists.
The MSCI Emerging Markets Index increased 0.2 percent as a rally in technology stocks offset declines in Russia, China and India. Russia’s Micex Index sank 1.2 percent after Bank of America Corp. reduced ratings on steel stocks. The Bombay Stock Exchange Sensitive Index retreated for a third day, losing 0.5 percent after Wipro Ltd., India’s third-biggest software services provider, forecast sales at its information-technology unit that disappointed investors. The Shanghai Composite Index sank 0.5 percent.
The cost of insuring Greek, Portuguese and Irish bonds climbed to records, while the yield on Greece’s two-year notes exceeded 25 percent for the first time amid concern the nations will need to restructure debt.
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