Stocks Rise After Fed Raises Rates
Stocks finished higher after the Federal Reserve raised the federal funds rate by 25 basis points to 4.25%. The markets interpreted the removal of the policy "accommodation" reference as an end game to the rate hikes may be near, says Action Economics.
The Dow Jones industrial average rose 55.95 points to 10,823.72. The broader Standard & Poor's 500 index was up 7 points to 1,267.43. The tech-heavy Nasdaq composite index gained 4.05 points to 2,265.0.
The Fed raised rates to 4.25%, as expected. It dropped the "accommodative" reference to policy but maintained "measured" pace, though it was tweaked a bit with "some further" qualifiers, reports Action Economics. It added the "committee will respond to changes in economic imbalances as needed."
"The statement is consistent with another 25 basis point hike in January, but the door is open thereafter, with data likely to dictate," says Action Economics.
January West Texas Intermediate crude oil rose 7 cents to $61.36 a barrel amid frigid weather in the Northeast. OPEC said it may trim output later in 2006, says Action Economics.
In economic news, U.S. retail sales rose 0.3% overall, and fell 0.3% excluding autos in November -- which was weaker than economics expected. October sales were revised up to 0.3% from -0.1% originally, while ex-autos were revised to 0.8% from 0.9%. Vehicle sales rebounded 2.6% after a plunging over 16% on a cummulative basis the prior three months. Meanwhile, gas station sales fell 5.9%. General merchandise sales were up only 0.1%, while non-store retailers fell 0.2%.
In deal news, ConocoPhillips (COP ) agreed to acquire Burlington Resources (BR ) in deal valued at $35.6 billion. Terms are $46.50 cash and 0.7214 ConocoPhillips share per Burlington Resources share.
Among the stocks that moved higher on Tuesday, Procter & Gamble (PG ) sees 68-69 cents second-quarter earnings per share on 25%-26% sales growth, above its previous guidance of 66-69 cents EPS on 23%-26% sales growth.
Lehman Brothers (LEH ) said fiscal fourth-quarter EPS rose to $2.76, from $1.96 a year ago, beating analysts' forecast of $2.64.
Best Buy (BBY ) shares fell after the company said its fiscal third-quarter earnings per share was 28 cents a share, below the average analyst estimate of 30 cents and down from a year earlier level of 30 cents. The home-electronics retailer issued a weak forecast.
Cendant (CD ) also warned that fourth-quarter earnings would hit the bottom of its forecast range.
In Europe, London's FTSE-100, Germany's DAX, and France's CAC-40 indexes finished modestly higher.
In Asia, Japan's Nikkei index rose 40.16 points (0.26%) to 15,778.86 -- a five-year high -- on speculation of a solid Tankan business sentiment survey tomorrow and dovish language in the U.S. FOMC's policy statement today, says Standard & Poor's MarketScope.
In Hong Kong, the Hang Seng index fell 41.78 points (0.28%) to 14,942.62 as investor took a more defensive approach to the FOMC meeting today due to concerns a rate hike in the U.S. would prompt an increase locally, says Standard & Poor's MarketScope.
Treasury yields fell slightly after the Fed hike was accompanied with the discarding of the "accommodative" reference, implying that the Fed is entering the bottom end of a zone of neutrality, reports Action Economics. The phrase "measured pace" was retained, however, and it appears that these alterations will not keep the Fed from tightening again, despite inspiring a relief rally, says Action Economics. The 10-year note yield fell to 4.53%.