Stocks Surge on Fed Notes

Easing interest rate and inflation concerns, along with optimism about first-quarter earnings, helped push the major indexes higher, despite a record close in oil prices

Stocks jumped on Tuesday, boosted by optimism about first-quarter earnings and easing inflation concerns. The March FOMC minutes showed that most Federal Reserve members thought an end to rate hikes was likely near. The S&P 500 and Nasdaq enjoyed their biggest one-day percentage gains in about a year, overcoming a rise in crude oil to over $71 a barrel.

The Dow Jones industrial average surged 194.99 points, or 1.76%, to 11,268.77. The broader Standard & Poor's 500 index gained 22.32 points, or 1.74%, to 1,307.65. The tech-heavy Nasdaq composite jumped 44.98 points, or 1.95%, to 2,356.14.

"Take oil and inflation out of the equation, and the markets should be rallying if you look at fundamental and technical measures," says Chris Johnson, managing quantitative analyst at Shaeffer's Investment Research. He notes that the major indexes rallied after the FOMC notes were released and alleviated worries that the Fed would "overshoot" on raising interest rates.

As Johnson sees it, earnings reports have been positive up to this point, while fund flows, sentiment readings, and volatility measures give reason to believe there's technical support behind a rally.

Still, the record price of oil may spook investors. May NYMEX crude settled up 95 cents to a new closing high of $71.35 a barrel. Iran's uncompromising stance on its nuclear program continued to be the driving force, with sources reporting ongoing speculative money flowing into crude, says Action Economics.

According to March 27-28 FOMC minutes, released at 2 p.m. ET, Federal Reserve members thought the end of tightening was likely "near," reports Action Economics. Further rate hikes would likely depend on data. While the expansion was seen as broadbased, growth was expected to moderate later in the year, though participants saw both upside and downside risks to their expectations around the economy's potential growth rate, says Action Economics.

In other economic news, the producer price index for March rose 0.5%, and the core PPI edged up 0.1%, roughly in line with expectations. The numbers are mitigating inflation concerns caused by a jump in crude oil toward $71 overnight and sustained price strength in commodities, says S&P.

February housing starts fell 7.8% to 1.960 million, a bigger drop than expected.

Tuesday was also heavy with earnings news. Merrill Lynch (MER) posted first-quarter earnings per share of 44 cents (including items), vs. $1.21 a year ago, despite a 28% revenue rise.

Johnson & Johnson (JNJ) reported $1.10, vs. 94 cents, first-quarter EPS on a 1.2% revenue rise.

Other companies reporting today include IBM (IBM), Amgen (AMGN), Motorola (MOT), Texas Instruments (TXN), and Yahoo! (YHOO).

Widely-followed companies reporting earnings on Wednesday include Apple Computer (AAPL), eBay (EBAY), Intel (INTC), J.P. Morgan (JPM), Coca-Cola (KO), Pfizer (PFE) and Qualcomm (QCOM).

Treasury Markets

Treasuries rose, pushing the 10-year note yield down to 4.97%, on a friendly combination of Fedwatcher views, benign inflation data, Fedspeak and FOMC minutes. "Yields slipped back below key waterlines as Treasuries absorbed the implication that the end of the tightening cycle was fast-approaching," says Action Economics. "Record levels on crude oil, commodities, and metal merely highlighted risk that such pressures lead to an economic slowdown ahead, rather than an inflationary pickup."

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