Stocks, gold soar on Fed economic plan

Materials and energy stocks rally after the Fed says it will buy $600 billion in long-term bonds. Gold climbs as the dollar weakens. New unemployment claims increase more than expected.

By TheStreet Staff Nov 4, 2010 7:54AM

TheStreetBy Melinda Peer, TheStreet

 

Updated at 1:50 p.m. ET

 

Stocks were surging more than 1% as investors poured into basic materials, capital goods and energy stocks a day after the Federal Reserve revealed a plan to jolt the struggling economy.

 

At 1:50 p.m. ET, the Dow Jones Industrial Average ($INDU) was up by 182 points, or 1.6%, at 11,397. Earlier today the blue-chip benchmark hit an intraday high of 11,427 for the year. The S&P 500 ($INX) was up by 18 points, or 1.5%, at 1,216. The Nasdaq ($COMPX) was rising by 31 points, or 1.2%, to 2,571.

 

Gold soared after the Fed said Wednesday it will buy $600 billion in long-term Treasurys by the end of June to reduce interest rates. Gold for December delivery was rising by $43.10 to $1,380.70 an ounce.  

 

"The conventional wisdom is buy on the rumor, sell on the news, and the market did the opposite," said Benny Lorenzo, chairman of Kaufman Bros. "I think it will keep going up because third-quarter earnings have been very, very good."

 

The U.S. dollar weakened on the Fed news, losing 0.7% against a basket of currencies and boosting oil prices. The December crude oil contract was adding $1.69 at $86.38 a barrel.

 

Shares of basic materials and energy companies were the market's biggest gainers. Caterpillar (CAT), Alcoa (AA) and Boeing (BA) were leading the Dow. Pfizer (PFE) was the only component to trade in negative territory.

 

Global markets also rallied. Hong Kong's Hang Seng jumped 1.6%, and Japan's Nikkei soared by 2.2%. The FTSE in London was increasing 2.1%, and the DAX in Frankfurt was adding 1.9%.

 

Central banks in Europe met today but didn't follow the Fed's lead. The Bank of England voted against expanding its bond-purchase program and left rates unchanged. The European Central Bank also opted to keep its main refinancing rate unchanged at 1%, as expected.

The Fed's plan comes as the number of newly jobless Americans continues to mount. The number of Americans filing jobless claims for the first time rose by 20,000 to 457,000 in the week ended Oct.30, twice as much as economists expected. Companies have been doing more with fewer workers, causing productivity to rise to an annual rate of 1.9% last quarter after declining 1.8% in the second quarter, the Labor Department said today.

 

In company news, Gap (GPS) shares were advancing 7.1% to $20.63 after the retailer reported a preliminary profit of 47 cents to 48 cents a share for the quarter ended Oct. 30, outstripping the 44-cent estimate of analysts polled by Thomson Reuters.

 

Apollo Group (APOL) stock was falling 8.1% to $35.36 after the company said the Department of Education was investigating the financial aid practices of its University of Phoenix.

 

Shares of BHP Billiton (BHP) were trading 4.7% higher at $90.09 after the Canadian government rejected its $40 billion bid to acquire Potash Corp. of Saskatchewan (POT) but gave the company 30 days to make an appeal. Potash shares were falling 3.6% to $140.21.

 

Time Warner Cable's (TWC) shares were advancing 6.1% to $63.31 after the company's third-quarter profit of $1 a share beat forecasts of 89 cents. The company also announced plans to buy back $4 billion in stock.

 

Shares of Qualcomm (QCOM) were rising 7.2% to $48.96 in premarket trading after the company reported a quarterly profit of 68 cents a share Wednesday, beating estimates of 59 cents.

 

Whole Foods Market (WFMI) shares were climbing 13% to $46.44 after the grocery chain posted a quarterly profit of 33 cents a share Wednesday, exceeding estimates of 28 cents. The company also increased its full-year sales forecast.

 

Sirius XM Radio (SIRI) shares were falling 0.6% at $1.56 after the company reported third-quarter earnings that topped estimates by 1 cent. Sales rose 15% from a year ago to $722.5 million, outpacing a $718.7 million estimate. The company also increased its full-year forecast.

  

Kraft Foods (KFT), Sotheby's (BID) and Starbucks (SBUX) will report quarterly results after the closing bell. According to Briefing.com, analysts anticipate per-share earnings of 46 cents, 42 cents and 32 cents, respectively.

 

The benchmark 10-year Treasury note was increasing by 21/32, diluting the yield to 2.503%.

 

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232Comments
Nov 4, 2010 9:46AM
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usa,

where do you live? Just wondering where the electorate votes only on substance? Pointing to one election out many to try to validate your point is pretty short sighted. You sound a little angry after your party got their azz whipped because the American people don't like what your party has done the last 2-4 years. Moderates (independents) determine the winners and loser in many races. Extremism on either side will lose in those cases. Some states, mostly in the NE and Left coast will always vote dem no matter how bad the candidate might be. Is it any wonder why the big blue states are bankrupt?

Nov 4, 2010 10:05AM
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Sev,

Sorry but Gore lost (it's official - look it up), now he's fighting that mighty global warming battle. Only a moron would believe that the wars caused our problems. And as for bipartisanship, I also get a kick out of saying the Republicans need to be the ones working with the dems. It's a 2 way street. But grid lock is definitely better than what the dems have done in the last 2 years.

Nov 4, 2010 10:46AM
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it's only thursday folks, friday has yet to GROWL and show it's rotten teeth!

 

Martini glassOpen-mouthedMartini glass oh, thank you i was getting worried!

Nov 4, 2010 8:57AM
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enoughplease.....it would be interesting to see how much Obama has cost the taxpayers for all the trips he has made since he has been in office in addition to his inauguration celebrations....the man has rarely been in Washington for 2 years and now he will be campaigning for 2012 in hyper drive....Obama still does not get it...he is NOT King of the United States.
Nov 4, 2010 11:52AM
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Ya know, I've just about had it with all this nonsense. Republicans are Hard Right and Most Dems are full left. Yea, there may be a few Blue Dog Dems and even fewer moderate Republicans yet most Americans consider themselves to be Moderates, including myself. The problem is we dont have a TRUE moderate party to vote for it's either right or left or Extreme right with the "Tea Party"  Ya know we all sit here high on our Horses and look at other countries around the world saying, poor them they are so backwards and yes there are different factions, which is quickly what they are becoming over here, "FACTIONS", but they are all loyal to their heritage and they are willing to die to preserve that heritage while we try to tell them "Be Like Us" Sure, we worship the Almighty Dollar and could care less about our fellow American citizens but we have a lot of cool stuff !! Don't worry about the 26 million, and still growing, Lazy unemployed Americans they will eventually all just die off and after we sweep them up out of the gutters It will just be us cool Rich people and all the Dead unemployed peoples kids and families that will be our slaves, YES, Be like us!!! You wanna know why a lot of other countries hate us, "WE HAVE NO MORE HONOR OR LOYALTY IN AMERICA"
Nov 4, 2010 9:53AM
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how exactly does this help the public consumer?, it seems this will only benefit those with the means to sling money into the market, what about the majority of the economies spending class, thats been choked out their savings and is now barely clinging on to the simpliest of bills, watching as the rich get massively richer, I've claimed this for a couple of years, the unknowledged bernake needs to go, his concern is that the banks have cash and we the public don't, is the economy not based seventy percent on public consumer spending, why is the seventy percent the side being neglected, a spending public builds demand at stores and manufactorers, if they keep feeding the banks, they will continue to not need the public, they will only need bernake and his cronies
Nov 4, 2010 9:38AM
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Some points:

Both Rand Paul and Marco Rubio are healthy examples of the Tea Party rebellion.  I suspect Rubio to distance himself from the movement and in 6-10 years or so make a run for the Presidency.  He has the perfect background:  parents of refugees who came from Cuba and worked hard to improve themselves and make a good life for their children (humble background), personal charisma and common sense.  Hopefully by then, the latter will be considered an asset.

 

Secondly, the infusion of FED money is not a bad thing as long as the economy can get some legs of its own within the next year.  Many of our clients made equity buys at the beginning of the week based on the anticipation of this decision.  It will bring a weaker dollar and some inflation but is a relatively small amount of money.  The headlines that it is "risky" are off base.

 

I would suspect that Obamacare is in for a very rough ride.  It will not be repealed for obvious reasons but it will NOT be funded by Congress unless there are major changes such as tort reform, negotiations with drug companies, competition across state lines for policies etc.  I am now leaning toward increasing staff based on this projection and the anticipation that tax codes will not change for the worse for at least a year or two.  I sorely need more agents but have been hesitant to hire because of the socialistic leanings and policies of Obama and Congress.  Now that he has been neutered, I am more likely to put some people back to work.  More thinking on that one though.

 

 

Nov 4, 2010 9:11AM
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President Barack Obama plans to start his trip to Asia next week with a stay at the Taj Palace & Tower hotel in Mumbai, the Indian hotel attacked by terrorists in 2008. He’ll also address outsourcing, and will visit Humayun’s Tomb in Delhi... Wall st J

Just google and you can see the trip for yourself. 

The article doesn't mention where the rest of them are staying. I'm sure it's not shacks, like in the movie Slum Dog Millionaire.

This guy is going to get ousted in 2012.

As for the Tea Party, Johnson in Wisco was one of the 1st TP. Now he's a Senator. 

Nov 4, 2010 8:23AM
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600 Billion, Obama is spending 2 Billion going on this trip to India, 200 million a day (they rented the Taja Mai Hal hotel out 527 rooms), 3000 people, 44 jets, nice.... and the Dems are wondering why they got swepted. Wait till 2012, he'll be gone to. With unemployment, a stagnate economy, sure let's go spend 2 Billion on a fun trip and sell out more American jobs (please don't write that he's going to get jobs from India). People gave Bush --it for going to his home in Texas, and don't say it's a cultural trip for his kids.
Nov 4, 2010 1:51PM
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responder...

so how do we get more production, if we don't have more consumption?

 

Can't get one without the other, unless you...lower the dollar by QE which makes our exports cheaper, so the consumption is by foreigners...so right back to devaluing the dollar folks....

Funny how that works.

Nov 4, 2010 1:35PM
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Midwest:

I buy a car, when I need a car.  I buy a computer when I need a computer. 

If our economy is such that we need to manipulate consumer behavior with monetary policy then we are truly in a sorry state. 

We don't need more consumption.  We need more production and more savings.   Saving today is almost vilified by the media and certain economists.   This is because our economy has been propped up with "easy money" at artificially low interest rates.

In a real economy, savings by the citizens would be the capital for businesses to investment and fuel employment and growth. 

Today, because our economy is fundamentally broken, people call on us to spend and even borrow to spend to try and get the broken car down the road a couple of more miles. 

The answer to our economic woes would be to fix the system so that we can get back to producing more than we consume and saving the remainder.    
Nov 4, 2010 12:28PM
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no ma'am, im pro capitalist, just not the kind america has where the CEO write the laws, the rules, lobby the pols, and circumvent all responsibilities such as taxes and regulations until we all fail.its you fluffers that worship at the alter of unbridled greed that are ruining what was once a fine culture of competition and fair play. the corporate monopolists and oligopoly counts on you to fight their battles and it seems to work. nice job

 

Nov 4, 2010 12:19PM
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Fed QE does not increase debt. It risks inflation if not managed. 
Midwest:

QE absolutely increases debt.  When the Fed prints up money to buy U.S. treasuries, then the U.S. government owes a bond debt to the privately owned Fed.  The U.S. government and the taxpayers are on the hook for this debt, which has to be paid back.  

Deflation is bad. Why would lower housing prices be good?  Hurts current homeowners and puts more under water with their mortgage.  Defaltion causes people to defer purchases, on expectation of lower prices, hurting demand. 
What matters is "what the market says the price of a house should be."

Why do you only figure the "hurt to current homeowners" and not consider homebuyers.  Homebuyers are hurt by home prices that don't reflect true market values.  Homebuyers benefit with lower prices.

In regard to deferring purchases with deflation, it sounds like you have been reading the web articles and repeating the Fed mantra.

Electronics have been falling for years, and people keep on gobbling them up.  I have bought several computers over the past 10 years with prices falling. 

Nov 4, 2010 12:10PM
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Balogna-hyperinflation is bad- no argument.  Moderate, managed inflation is good (although tough to pull off) Hard to make a case for deflation being good, if you're trying to encourage economic recovery. I think nearly everyone who owns a house  or has a mortgage would like to see housing prices go up. When housing prices start to recover, you're going to see folks sitting on the sidelines start to buy, before prices go up more.  Now you certainly don't want the prices climbing irrationally or too quickly,like it did earlier this decade, but 2-4% a year, is fine. 
Moderate inflation is not good.  Why is it good?  Would you accept someone stealing 4% or your retirement assets every year.  If not, why do you think it is good for inflation to steal 3% or 4% from you.

The biggest lie that is perpetrated in the news and on the web is that deflation is bad.

I like the fact that the computers I buy now cost several hundred dollars less than they did 12 to 15 years ago.   

As to the cost of houses, sure, a homeowner would like the value of their house to be as high as possible.  However, I'll sure bet that a homebuyer, such as a young couple, would like home prices to be lower. 

A house was never meant to be an investment, but rather a place to live.  If it is thought of as a place to live then its market price becomes less important.  If you are using the home equity to finance excessive consumption then the market price becomes more important. 

Nov 4, 2010 11:58AM
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old honest Abe-

regulation is part of it. No doubt.  Companies are goingto go where its cheapest.  Too much regulation here?  Maybe, but I've seen some pretty horrific pictures of Nigeria where regulation is non-existant and oil spills have destroyed whole parts of the landscape. No point in having cheap oil if we're all dying from pollution.

So its a balance. Answer isn't no regulation or over-regulation.  Its smart regulation.

Nov 4, 2010 11:49AM
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dharm - agreed on the expansion.  they have to right?  they cannot continue to sit on this much cash.  maybe now the elections over there will be a little more clarity to the direction of the country...at least w/ taxes, which seems is the only thing businesses care about...for better or worse.
Nov 4, 2010 11:47AM
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Balogna-

hyperinflation is bad- no argument.  Moderate, managed inflation is good (although tough to pull off)

 

Hard to make a case for deflation being good, if you're trying to encourage economic recovery. I think nearly everyone who owns a house  or has a mortgage would like to see housing prices go up. When housing prices start to recover, you're going to see folks sitting on the sidelines start to buy, before prices go up more.  Now you certainly don't want the prices climbing irrationally or too quickly,like it did earlier this decade, but 2-4% a year, is fine. 

Nov 4, 2010 11:44AM
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The long term effect of a strong, overvalued dollar the past 20-30 odd years has been to push oil production and other manufacturing) overseas.

I would think it has been over regulation, the EPA, and the ban on off shore drilling that has pushed oil production overseas? It seems everyone is drilling off our shores except us - the Brits, Mexico, Viet Nam, etc.
Nov 4, 2010 11:36AM
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Livin.  Real nice movement on MU. Big volume.  Nice if it
would go back to 10, 9 very realistic now.  Cheers.

Livin.  So many companies flush with cash. It would be nice to see them put that to work, in expansion.  Particularly in the hiring department. 
Nov 4, 2010 11:17AM
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Midwest moderate, that is true of all government levels.  Just look at the Federal government, a 33% decline in revenue, and the Donkeys insist we MUST spend another 1.2+ trillion every year!

 

There certainly is a problem, in that when revenue declines, spending continues.  Regardless of the cause of the revenue decline.

 

The problem is not on the TAX side, it's the SPENDING!  Until we figure that out we can only monitize the debt...  At some point the whole will melt down...

 

 

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