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 1:27PM
avatar

And the president said a few months ago...."the private sector is doing just fine" OMG

 

See what we get America when we hire someone who.... never even ran a gift shop.

Sep 13, 2012 1:28PM
avatar
The fed is going to buy bonds until the jobs rebound?Why not stop all the wars and spending the tax payers money to rebuild these countries.We would be better off if the people of this nation could run it themselves.The government has put us in a no win situation.
Sep 13, 2012 12:52PM
avatar
Ya a little inflation is tolerable Ben.......... Unless you need gas or food.  Fool you are killing the poor and choking the middle class and helping only the big banks with their scams.  Inflating stocks does nothing to help the millions who can't afford them.  When your press dries up and stocks plummet what will you have accomplished?
Sep 13, 2012 1:03PM
avatar

Hear that?

 

It's the sound of our currency being debased.  Oh and bankers laughing as they write out a big fat bonus to themselves, but don't mind that part.

Sep 13, 2012 1:16PM
avatar

Did I read that right?

"The Feds said it will buy at least $40 billion a month in mortgage-backed securities".

 

OMG another big mortgage Bust to come.....&.... this time it's led by the Fed's.

 

Obama...wake up....that's what happened under Bush (Fany Mae & Freddy Mac).....HELLO

 

What a dumb a$$.

 

Sep 13, 2012 1:13PM
avatar

If The People won't spend their money...we will.

 

 Is that what I am hearing for "our" government? 

 

Wow...this can't end well... better stockpile some more MRE's...

Sep 13, 2012 12:51PM
avatar
Another ploy to make the banksters s few billion richer or what?
Sep 13, 2012 1:19PM
avatar
He is buying Mortgage debt. This may have a short term + effect.
Government housing on steroids
Winners: Bank stocks.
Loss column: Us and the dollar.

Sep 13, 2012 1:31PM
avatar

What good timing - two months before the presidential election!  Figured they would try to goose the economy one more time, to win a few more votes for Obama.  Sadly, the gov't continues to kick the can down the road and run up the debt.  Gov't spending should have been CUT long ago, and interest rates should never be below 5%.  QE3 is just another thinly disguised money-printing program.  Here comes more inflation - whichl is realistically already above the govt's 2% "target". We can keep printing funny money and paying our debts with it, but eventually the dollar will collapse.Better keep stocking up on seeds, guns, and gold!

Sep 13, 2012 1:26PM
avatar
The bottom line is, instead of allowing the market and economy to detox and go through temporary withdrawals, The Fed just dished out another dose of 'crack' to the economy trying to maintain the high, it is only prolonging the misery by kicking the can down the road and making it worse. No matter what the Fed does or attempts to predict, market forces are stronger and are self correcting. Give it time. The next bubble and crash is just ahead. It's what the Fed wants and does since 1913. Inflation is the hidden tax on the people, robbing savings from pensioners and old people that need it most. Jobs are created by producing more, consuming less, and through savings thus creating capital for businesses to expand within the economy, not by bond buying and creating bigger deficits with higher inflation. We are doing none of the above except the latter.  Be warned, time to wake up!!! 
Sep 13, 2012 1:26PM
avatar
Oh goody goody, "stimulus" from where I sit didn't do much except drive the price of gas and heating oil ever higher, unemployment stays the same, those whose benefits have run out no longer count, and the welfare rolls get bigger and bigger, so let's do it again !!!! For what piddly few cents we earn for interest on our money I'd expect the banks will soon charge the customer for putting money into a savings account. Mark Twain got it right when he said that common sense is not very common........
Sep 13, 2012 1:27PM
avatar
Here we go again. The fed is bailing out the banks and screwing the American people. All this is going to do is increase inflation and unemployment. Watch the prices of housing go up. We need deflation not inflation. People need housing at an affordable price, not high priced mortgages'.
Sep 13, 2012 1:25PM
avatar
Dropping rates will NOT create more jobs.  "Assisting" ala the Chinese and Japanese, our steel makers and solar panel makers will.  Developing Nat gas resources and giving tax credits for converting from home heating oil to nat gas will help create jobs.  If I can refi to a lower rate on my mtg, thanks, but that still won't create jobs. 
Sep 13, 2012 2:00PM
avatar
Gold and oil higher!!! And that's good news? 
How will higher gas prices help us?
Higher food prices will follow very closely behind!!!!

What a f*cking joke this is!!!!!!!!!!!!!!!!!

Bernanke just sold us further down the road....he's proof that if you educate an idiot you still have an idiot.....


Sep 13, 2012 1:04PM
avatar
JUST WHAT THE MIDDLE CLASS NEEDS IS MORE SPECULATION ON WALL ST.
Sep 13, 2012 1:35PM
avatar
Whew.... I'm not crazy. Ben, thank you. You just confirmed what I've been believing for the past several years..............this economy still sucks. 
Sep 13, 2012 1:04PM
avatar
Feed the banks.............starve Americans..............Hows that working for ya Obuma???? NO OBUMA IN NOVEMBER!!!!!
Sep 13, 2012 2:07PM
avatar
Lowering prices at the pump to 2.25/gal would do alot more to stimulate the economy.
Sep 13, 2012 1:39PM
avatar

More artificial pumping the pump that will be even more disasterous down the road.

avatar

This is not a good thing. what the feds are doing is buying our own debt.

 

get ready for the crash because Obama and the feds have no phucing clue.

 

You all can just put your heads between your legs and kiss your a$$es good by.

Here comes the next great depression except the new one will make the 1930's look like a picnic

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