Stocks at 5-year highs as Fed launches more stimulus

The Dow enjoys a 207-point gain. The Fed will keep rates low at least through mid-2015 and start buying $40 billion a month in mortgage bonds. Apple hits a new high. Gold jumps, and crude oil tops $98.

By Charley Blaine Sep 13, 2012 12:40PM
Charley BlaineUpdated: 6:20 p.m. ET

Stocks soared today to nearly five-year highs after the Federal Reserve announced it will engage in a new round of economic stimulus because it fears the economy will stall without assistance.

The plan includes a promise that interest rates will remain at "exceptionally low levels" until mid-2015. Plus, the Fed said it will buy at least $40 billion a month in mortgage-backed securities to ensure that rates do, in fact, stay low. The bond-buying program is the Fed's third round of so-called quantitative easing, or QE.

The idea is that low interest rates, ultimately, will lead to more overall demand, especially for houses, job creation and a stronger economy. To get there may mean tolerating more inflation than the 2%-a-year rate the Fed says it regards as optimal.

Stocks were modestly higher ahead of the Fed decision, but the little rally morphed into a big one afterward. The rally was helped by Apple (AAPL), up $13.19 to $682.98 after hitting a new intraday high of $685.50 as Wall Street analysts fell over each other upgrading the stock after the company introduced its new iPhone on Wednesday.

The Dow Jones industrials ($INDU) closed up 207 points to 13,540; the blue chips were up as many as 240 points. The Standard & Poor's 500 Index ($INX) gained 23 points to 1,460. The Nasdaq Composite Index ($COMPX) added 42 points to 3,156.

Article continues below.
The Nasdaq-100 Index ($NDX), heavily influenced by Apple, had gained 40 points to 2,831.

Gold (-GC) and crude oil (-CL) also surged to 7-month and 4-month highs, respectively, as the dollar fell against major currencies.

The Dow closed at its highest level since Dec. 26, 2007, and is within 625 points, or 4.4%, of its all-time closing high of 14,164.53, set on Oct. 9, 2007. The S&P 500's finish was its best since Dec. 31, 2007. The index is 6.7% below its October 2007 peak. The Nasdaq closed at its highest level since Nov. 15, 2000.

The Dow is up 1.8% this week and up 10.8% for the year. The S&P 500 is up 1.5% for the week and 16.1% for year. The Nasdaq's gain so far this week is 0.9%, but it's also up 21.5% for the year.

And for those who like history: The Dow is up 106.8% from its closing low on March 9, 2009. The S&P 500 is up 115.8% at the same time, and the Nasdaq is up 148.8%. The Nasdaq-100 is up 171.2%, reflecting a lot of Apple's big gains.

What the Fed did
The Fed's Federal Open Market Committee agreed to keep its federal funds rate -- what banks charge each other for overnight loans -- at 0% to 0.25%. The fed funds rate will probably hold through 2015. It said low rates would be in place through 2014. 

On top of that was the quantitative easing program, which will start with the Fed buying $40 billion in securities backed by Fannie Mae and Freddie Mac. But the program will be open-ended, meaning the Fed could continue to buy securities until the central bank believes the economy is strong enough to stop the program.

The Fed will also continue to reinvest proceeds from maturing securities it already owns. The combination of both programs will increase the Fed's holdings of longer-term securities by $85 billion a month.

How open-ended does the Fed plan to be? Try this from its statement: "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

Bernanke wants stronger job growth
At a news conference this afternoon, Bernanke defended the Fed's decisions. He wants to see stronger job growth. "What we've seen in the last six months isn't it."

Between March and August, the economy added only 97,000 jobs a month. Between September and February, the monthly average was 205,000.

He asserted the Fed's policies were Main Street policies. "This is a Main Street policy because what we're about here are jobs," he said.

He dismissed the idea that the Fed was acting for political reasons. The Fed has worked to be "nonpartisan" and not take politics into account. "We make our decisions based entirely on the state of the economy."

Inflation isn't a problem, he insisted. If it does become an issue, the Fed will deal with it.

Energy prices -- New York close (updated)



Thur.

Wed.

Month chg.

YTD chg.
Crude oil (-CL)

$98.31

$97.01

1.91%

-0.53%
(per barrel)











Heating oil (-HO)

$3.2113

$3.2152

0.98%

10.19%
(per gallon)











Natural gas (-NG)

$3.0370

$3.0630

8.50%

1.61%
(per mil. BTU)











Unleaded gasoline (-RB)

$2.9622

$3.0016

-0.36%

11.47%
(per gallon)











Brent crude 

$116.90

$115.96

2.03%

8.87%
(per barrel)











Retail gasoline

$3.8690

$3.8430

1.04%

18.10%
(per gallon; AAA)












What the Fed decision means
The Fed's decisions mean this: If you can qualify for a 30-year mortgage, it will costs you 3.6% or so, and those rates will remain in place for some time. If you can qualify for a four-year auto loan, it will cost you 3.5%.

It also means that savers will earn very little on their money. To earn more will require accepting more risk, which may mean higher-yielding assets like corporate bonds, bond funds or stocks.

The decision was not unanimous. Jeffrey Lacker, president of the Richmond Federal Reserve Bank, opposed the decision. He opposed additional asset purchases and believes the Fed should not say when it expects low rates to end. Lacker has said before he thinks interest rates will move higher, perhaps as early as next year.

Critics charged the Fed is endangering the economy and could set off new inflation pressures. The dollar did move to a 7-month low against the Japanese yen and a 4-month low against the euro. The euro's close of about $1.30 today puts it within its range against the dollar since the end of 2004. The dollar has fallen against the yen.

A slow economy is the catalyst
The Fed moved today because the economic recovery has been tepid at best. The Fed itself trimmed its projection for 2012 growth to 1.7% to 2%; it was 1.9% to 2.4% in June. It sees the economy strengthening in 2013 and 2014, with the unemployment rate falling below 8% in 2013 and falling further in 2014.

You could see the weakness in today's jobless claims report.

The Labor Department estimated that 382,000 people filed for unemployment insurance last week, up from 367,000 the week before. The four-week moving average, which smooths out the trend, was 375,000, up for a fourth straight week.

One contributor to the increase was a rise in claims filed by workers affected by Hurricane Isaac.

Last week, the Labor Department said only 96,000 jobs were created in August, although the unemployment rate fell to 8.1%.

Metals, financial stocks lead the rally
Metals, financial and energy shares were the market leaders. All 30 Dow stocks were higher, along with more than 463 S&P 500 stocks and 91 Nasdaq-100 stocks.

Volume, however, was fairly light. New York Stock Exchange volume was 730 million shares.

Bank of America (BAC), JPMorgan Chase (JPM), American Express (AXP) and Alcoa (AA) were the top Dow stocks. Microsoft (MSFT) and Wal-Mart Stores (WMT) were the laggards. (Microsoft publishes MSN Money.)

Coal-producer Alpha Natural Resources (ANR),  Pall (PLL), real estate brokers CBRE Group (CBG) and iron-ore producer Cliffs Natural Resources (CLF) were the S&P 500 leaders. Auto-parts retailer O'Reilly Automotive (ORLY) and NRG Energy (NRG) were the laggards.

Monster Beverage (MNST) and Staples (SPLS) were the Nasdaq-100 leaders. Oreilly Automotive and chipmaker Marvell Technology (MRVL) were the laggards.

Will Apple hit $1,000?
Apple shares were up because of the iPhone excitement. The new device features a bigger screen and access to the fastest wireless networks.

The new model ships on Sept. 21 in the United States, Australia, Canada, France, Germany, Hong Kong, Japan, Singapore and Britain, and will hit 100 countries by the end of the year in the fastest international rollout for an iPhone so far.

Analysts raised forecasts for Apple's share price by as much as $200 to between $750 and $1,000.

While Apple hit a new high, Google (GOOG) m

Meanwhile, Northrop Grumman (NOC) fell 92 cents to $67.01, the fifth-biggest drop in the S&P 500. Revenue and margins at the maker of Global Hawk surveillance drones may decline more than other large defense companies as the U.S. makes budget cuts, according to UBS analyst David Strauss.

Nike (NKE) slid $1.64 to $99.20. Citigroup analyst Kate McShane cut her recommendation on the stock from "buy" to "neutral," citing valuation and the potential for deceleration of future orders because of a slowing global economy.

Pall rallied $4.63 to $62.80 after the supplier of filters for drugmakers and refineries said pro-forma earnings from continuing operations in the fourth quarter were 86 cents a share, exceeding the average analyst estimate of 77 cents.

Crude oil and gold move up; the dollar is lower
Crude oil jumped nearly to $99 early today as markets reacted to the violence in Libya that claimed the life of U.S. Ambassador Christopher Stevens and three other Americans. But the price fell back to settle at $98.31 a barrel, up $1.30. That was a

Brent crude
was up 93 cents to $116.89 a barrel. Brent is the biggest influence on gasoline prices. The national average price of gasoline was up 2.6 cents to $3.869 a gallon, according to AAA's Daily Fuel Gauge Report.

Gold, meanwhile, settled up $38.40 to $1,772.10 an ounce, a seven-month high. Silver jumped $1.486 an ounce to $34.78.

The 10-year Treasury yield slipped to 1.756% from 1.765% on Wednesday. The dollar was weaker against major currencies.

Short hits from the markets -- New York close (updated)



Thur.

Wed.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.1000%

0.100%

11.11%

900.00%
5-year Treasury note 

0.654%

0.696%

9.73%

-21.20%
10-year Treasury note

1.756%

1.765%

12.42%

-6.15%
30-year Treasury bond

2.967%

2.926%

10.54%

2.70%
Currencies











U.S. Dollar Index

79.237

79.723

-2.44%

-1.60%
British pound

1.6155

1.6116

1.68%

3.97%
(in U.S. $)

 








U.S. $ in pounds

£0.619

£0.621

-1.65%

-3.82%
Euro in dollars

$1.30

$1.29

3.09%

0.22%
(in U.S. $)

 








U.S. $ in euros

€ 0.770

€ 0.775

-3.00%

-0.22%
U.S. $ in yen 

77.70

77.85

-1.01%

0.78%
U.S. $ in Chinese

6.35

6.32

-0.19%

0.41%
yuan











Canada dollar

$1.033

$1.025

1.81%

5.26%
(in U.S. $)

 








U.S. dollar 

$0.969

$0.975

-1.78%

-5.00%
(in Canadian $)

 








Commodities

 

 

 

 
Gold (-GC)

$1,772.10

$1,733.70

5.01%

13.10%
(per troy ounce)

 








Copper (-HG)

$3.710

$3.693

7.32%

7.97%
(per pound)

 








Silver (-SI)

$34.7780

$33.2920

10.61%

24.59%
(per troy ounce)

 








Wheat (-ZW)

$9.0200

$8.9000

1.41%

38.18%
(per bushel)

 








Corn (-ZC)

$7.7375

$7.695

-3.25%

19.68%
(per bushel)

 








Cotton 

$0.7353

0.7333

-4.83%

-19.80%
(per pound)

 








Coffee

$1.7885

1.775

8.56%

-22.12%
(per pound)

 








Crude oil (-CL)

$98.31

$97.01

1.91%

-0.53%
(per barrel)










 

755Comments
Sep 13, 2012 5:03PM
avatar
You can make interest rates zero, if the banks don't lend the money what is the difference ?
Sep 13, 2012 5:02PM
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Really what was the Fed to do ? What we really need is the politicians to move on fiscal policy, like the tax code, the fiscal cliff, energy, etc. . I don't see the politicians doing anything, especially leading. I mean it's election time. You expect them to worry about the country's economy when they have campaigning to do ?
Sep 13, 2012 5:01PM
avatar

Stocks hitting 5-year highs (which is a lie since the market was over 14,000 before the big crash), just means we are seeing five straight years of market manipulation.

Wall Street saying how the market is (supposedly) hitting 5-year highs does nothing for the hundreds of millions who lost on the average 40-percent of the value of their phony 401K retirement accounts in the crash. It will take 15-years of coninuous market growth just to get these Americans back to where they once were.

Wall Street is playing (with) in our money.

Sep 13, 2012 5:01PM
avatar
What a bunch of rubbish. There's plenty of money out there as you can see in the up and up of the stock market. Let's keep buying mortgage securities, yeah, great idea since most of the general population isn't working, dropped out of the work force or is on welfare. I recently read that the amount of people in the workforce is at the lowest in at least 31 years or maybe even in history. 47 million on welfare and I'm sure the 8.1% unemployment doesn't account for that or even the people who just stopped looking for work. Nobody is investing in people, industry, trades brick and mortar the real stuff that made this country great. People all over the world wanted to come here to work and invest in their futures, their families and the greatness this country once had. This included EVERYONE no matter what race, creed or religion. Now we have a broken gov't where any of the branches can't agree on anything, backdoor deals bypassing Congress through loopholes in the system and the least transparent gov't ever. what's even scarier,  The President can't even make a suitable budget for our countries expenses and Super commitee to target the deficeit that failed, just an open checkbook to write whatever he wants. 16 trillion deficeit? no worries. You can blame Bush all you want, you can say that he drove the car to the cliff but Obama and his administartion has more than taken the liberty of pouring gasoline on the car, lighting it on fire then pushing it right off the cliff. Now the stock market is having an awesome rally,banks getting bailed out and making money over fist from the near zero interest rates and the rest of the general population is stuck buying the overpriced, cheap junk that is produced and what's even worse? we buy it on credit because we can't afford it on our little paychecks that we do from our jobs that we work hard at and the worst of all, some of us can't even qualify for credit because we didn't get a bailout and were left to fail. I hope this nation wakes up and takes a whiff of the cow manure right in front of us and says enough! We have the opportunity to make change in November and I hope change happensbecause we're all in trouble if it doesn't.
Sep 13, 2012 4:59PM
avatar
Bernake fans will need some blind luck. Bubbles look like economic prosperity. The internet bubble and the real estate bubble have popped. The stock and dollars bubble will also look like prosperity. They are not sustainable, because the real wages are out of balance with prices.  
Sep 13, 2012 4:58PM
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wow..and dollar hit all time low...so what? all that means is the poor and middle class will get hit the worst...thanks obama...NOT !!...he is the worst thing for middle class vote obama out
Sep 13, 2012 4:57PM
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 "this type of move on the part of the Fed is nothing more than more welfare for the investor class. "

 

 

HA..how bout them apples ABS...enjoying your 'bailout' (along with your other Romney minions) while the rest of the country gets f'd...do you deserve the protection of our soldiers?

 

No worries though ABS...you'll get..what's coming to you!

Sep 13, 2012 4:57PM
avatar
Jeff, by lying to America about weapons of mass destruction, Bush killed about 162,000 Iraqi Muslims, over one third were innocent civilians. Just maybe that's why Muslims don't like Christians and want to kill them. If Muslims killed 162,000 Mormons, I think the Mormons might be mad to.
Sep 13, 2012 4:56PM
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So the Fed is going to buy 40 billion dollars of mortgages a month. That means the banks get their money, but the people get nothing. Instead of the bank owning the mortgage, the Feds will. People still can't afford their mortgage, no matter who owns it. Many have no job, or prospects. So how is this going to help our economy? Sure, the banks will have more money & be more willing to make loans, but if people aren't working, then they can't get a loan.
Sep 13, 2012 4:54PM
avatar
The FED is doing the JOB of the DO NOTHING GOP CONGRESS......The party of  NO, and OBSTRUCTION!!        
Put the blame where is lies......Congress......They don't mind spending money in other countries Nation building....just ask George W....... A trillion dollars would have spent nicely in the USA vs IRAQ......Funny how we can deficit spend for IRAQ but NOT OUR OWN DAMN COUNTRY at a time when we need to invest in roads, bridges, schools, cops, firefighters, and stimulate the economy.....What is WRONG with that picture....,  Everything is wrong with that picture......The FAR RIGHT IN THE GOP needs to GO !!!!  

It's time to do some Nation building in the U.S.A..    Roads, bridges, schools, electrical grid....etc, etc..etc.......But the Party of NO would rather spend that money in other country's   and will not pass the President's JOBS bill that would do just that ......Nation build in the U.S.A.....

The GOP days are numbered, and we will be much better for it..
Sep 13, 2012 4:50PM
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We are truly headed for catastrophe.  The Fed is going to pump 40 billion dollars , from the fed's personal printing machine, a month into our economy.  THE first stimulus worked so good, let's just keep throwing good money after bad.  We are going to have  super high inflation because of this.  I am old enough to remember Jimmy Carters debacle of a presidency when we had inflation around 17%.  That  was devastating.  Obama's presidency is sooooooo much like Carters, another words HORRIBLE!
avatar
Lets' see, reduce the value of the dollar

Oil is traded using U.S. dollars

So, what happens to the price of oil?

It goes up, and our economy sinks .............. there is no other possible outcome!

Sep 13, 2012 4:48PM
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Alias, it's the Mormon Spring you should be worried about, Romney lead the Socialist take over of Health Care in Massachusetts, so why did Republicans nominate a known Socialist as the leader of your Party. They clearly intend to bring about a USSR take over here, if you vote for the United States Socialist Republicans, you must be a supporter of Socialism. ( DEET DA DEEE )
Sep 13, 2012 4:45PM
avatar
Yippee  !! more money for Wall Street crooks !  Great day for America !
Sep 13, 2012 4:42PM
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Congress GAVE MONEY TO THE  RICH????? get Your head out of Obamas azzzzz and understand it was not congress monet to give, it was not Obamas money ot even My money it was Their money...and speaking of Their money...what the hell did the Government due to EARN IT???

avatar

Federal Reserve insane ---- trying the same thing to get a different result

 

JUST DO IT THE WAY THEY GOT US OUT OF THE GREAT DEPRESSION --

 

HIRE TENS OF MILLIONS OF AMERICANS AT LIVING WAGES TO BUILD STUFF back then it was useless war machines but the money pumped into the economy thru the wages go the economy going again.

 

GEE IS BERNAKE AND THE REST OF THE FEDERAL RESERVE TOTALLY STUPID???

 

I guess after a few generations of taking over your father's father's father's business the Federal Reserve and not really understanding about reality will cause morons to be running our country right into the ground.

 

Time to rebell against the 1 percenters and kick them out of the country and tax them 110 percent of their assets and wealth as they are leaving the country.

 

QUOTE

The idea is that low interest rates, ultimately, will lead to more job creation and a stronger economy. To get there may mean tolerating more inflation than the 2%-a-year rate the Fed says it regards as optimal

END QUOTE

 

 

Sep 13, 2012 4:38PM
avatar
Islam...the religion of peace.
If you don't believe it, we'll cut your head off, in the name of Allah.
Sep 13, 2012 4:35PM
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The Federal Reserve which is a private banking cartel and NOT a government entity has more money than you can imagine and manipulates our economy to put even more money in their pockets 

 

They have kept americans in debt since federal income was inacted in the early 1900's.  Your federal income tax goes to the Federal Reserve for payment on interest for loans to the US government.  So they not on keep you in debt but the US government also.

Sep 13, 2012 4:30PM
avatar
Give me more Monopoly money and I will buy more stocks too.
Sep 13, 2012 4:28PM
avatar
remember in order for the economic collapse to be complete before the serpent (OBUMBER) will be able to swallow it whole......So it has to create the biggest illusion of wealth possible before they start to strangle you to death. Give this tactic (false sense of hope) a couple of weeks and then, Get Ready for the big squeeze in October!!!! The collapse is getting closer...Have they officially called it QE3 yet? No and they wont !!! They are squeezing you at the pump and the food stores first to drain you out of all you funds...Notice Gas at 4.10 + and food inflation for the critical essentials WATER, AND FOOD THAT CAN BE STORED FOR LONG DURATION....They want to create a PANIC...FOR FOOD , MONEY and THE BASICS.....WAKE UP..!!!  WAKE UP...!!
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