Stocks jump on hopes the Fed will keep rates low

The Dow jumps nearly 140 points ahead of a big Federal Reserve decision on interest rates. Crude oil closes above $98.

By Charley Blaine Jun 18, 2013 5:23PM
Financial Stock Chart © Kick Images, Photodisc, Getty ImagesThis is a market that's buying the news, hopes and speculation that the Federal Reserve is not ready yet to make major changes in its interest-rate policy.

But if traders are wrong, watch out.

Stocks rose for a second day in a row Tuesday, and the Dow Jones industrials ($INDU) finished up 138 points to 15,318, its second day of gains of 100 points or more.  The close was about 91 points below its peak close of 15,409.39, set on May 28.

The Standard & Poor's 500 Index ($INX) and Nasdaq Composite Index ($COMPX) also moved higher in a broad rally. Crude oil closed above $98 a barrel for the first time since September.

The S&P 500 climbed 13 points to 1,652. The Nasdaq added 30 points to 3,482. Crude oil (-CL) finished at $98.44 a barrel in New York, its highest close since hitting $99 a barrel on Sept. 14, 2012. Gold (-GC) fell $16.20 to $1,366.90 an ounce.

The Fed will announce its policy on rates on Wednesday morning, followed by a news conference at 2 p.m. ET with Chairman Ben Bernanke. Those events will be closely followed by investors and traders around the world, for hints of where the central bank will move next.

The focus will be on two key questions:
  • Will the Fed change its stated goal of keeping rates low until the national unemployment rate drops below 6.5%?
  • And will the Fed start to trim its campaign of buying of Treasury and mortgage bonds, now at $85 billion a month?
Trimming the bond buying could push longer-term rates higher. They have been rising for a bit more than a month. The 10-year Treasury yield was 1.621% on May 2 and rose to 2.182% on Tuesday from Monday's 2.171%.

The answer to the first question probably will be in the Fed statement, and it will repeat what the Fed has been saying: It expects its federal funds rate to remain at exceptionally low levels through at least late 2014.

Bernanke will be repeatedly asked what the catalyst might be to cause the Fed to dial down its bond-buying program. He will annoy everyone by not offering an answer. But the market sees non-farm payroll growth of 200,000 or more as a potential trigger.

The key task for the Fed chairman is to explain his reluctance to discuss specific conditions without setting off a sell-off. That's what happened at a May 22 Congressional hearing.

The Fed decision on Wednesday will contain one dissent: from Esther George, the president of the Federal Reserve Bank of Kansas City. She believes the Fed should start raising rates now to head off a re-ignition of inflation pressures.

The market was led by industrial stocks and consumer discretionary stocks such appliance-maker Whirlpool (WHR) and La-Z-Boy (LZB).

Twenty-eight of the 30 Dow stocks were higher on Tuesday, led by General Electric (GE), Verizon Communications (VZ) and American Express (AXP). Merck (MRK) and Microsoft (MSFT) suffered small declines. (Microsoft is the publisher of MSN Money.)

In addition, 423 S&P 500 stocks were higher. At the same time, 85 stocks in the Nasdaq-100 Index ($NDX) were higher. The index was up 25 points to 2,996.

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28Comments
Jun 18, 2013 6:36PM
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Crude oil $100 a barrel on speculation Ben will keep printing and devaluing the dollar. Supply and

demand and free markets are a thing of the past when you have Wall St. controling the Fed.

Jun 18, 2013 7:31PM
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What happened when stocks used to trade on company value and productivity, not manipulation...WALL STREET TOTAL FRAUD!
Jun 18, 2013 6:23PM
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Two days gambling on "hope" just cost America more than $100 BILLION in cash and debt. Are we really THAT stupid or is it WAY past time to pull YOUR life savings OUT and leave the crooked to pay the tab? We haven't had a pulse in years, just Bernanke pumping up utter stagnation.  
Jun 18, 2013 6:00PM
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Bernanke Blows and so does Obama.Approval rating is now below GWB.

Jun 18, 2013 6:14PM
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When will the conversation become the massive debt the FED has already accumulated. It's hard to switch Fed chiefs now as Uncle Ben created this monster so it should be him seeing it to where ever it may lead. You started it, now start cleaning it up Uncle Ben.
Jun 18, 2013 7:31PM
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Who will pay for the free money Ben is giving the banks and bonds he is buying? Where is this money coming from??
Jun 18, 2013 7:25PM
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When it all comes crashing down only the very rich will survive. The rest of the pensioners and retired folks are going to loose every penny they ever saved. If they have their money in mutual funds or cash in the bank it will all be gone. Then watch the filthy rich scoop everything up on the cheap and leave the rest of America in ashes. Just look at what they have done in Detroit, it's a crying shame. 40 years ago it had the best economy in America and now it's a wasteland. The big 3 just packed up it's game and left town. What happened to all those manufacturing jobs the bailout was suppose to create, oh yea GM is building a giant plant in China. The fix is in folks, the table is tilted and nobody seems to notice, nobody seems to care. Get ready for the greatest screw job in all of American history.
Jun 18, 2013 7:03PM
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Stocks do not jump on "hope". Stocks jump in anticipation for possible negative announcement tomorrow. So that there is really no loss if they tank the DOW tomorrow or they already took their profit by the time the market opens tomorrow. It also catches the wave riders, get more people in the boat and then let's sink the ship when it is fully loaded. Also stocks do not jump on something. This implies that the public demand has something to do with a stock movement. Even if the entire retail investor population in the US would militarily coordinate to buy or sell at the same time, it would barely represent 10% of all volume exchanged with the other 90% still being traded by algorithms...Only mutual fund managers have the ability to make a stock or an index move in a trend. And they don't act on fear or hope. The rest is just market makers confusing people.
Jun 18, 2013 6:55PM
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The Fed has already said, several times, that they want to see UE below 6.5% and inflation no more then 2%.  so what's the deal. They could slow the rate of MBS and TBill purchases and still keep short term rates at or near zero. What's actually amusing is that would benefit BDC's and REIT's since many have the ability to hedge short term rates and while buying high rate long term paper. Of course the hedgies and traders have probably been scooping up bargains while fueling the higher rate rhetoric.
Jun 18, 2013 8:07PM
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With how arbitrary the value of money has become, why even pay for anything anymore? Besides being forced to.

Money seems like it's more of a way to distribute than as a store value.
Jun 19, 2013 5:08AM
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Why keep rates low? The only ones it's helping is big banks. They're the only ones that can borrow money. They can afford to keep all their cash riding on derivatives. Joe consumer is already paying the price at the grocery store due to inflation. Yes, I said inflation! That, like everything else this administration refuses to acknowledge while living in their land of oz, is there. Like the pink elephant in the room no one can talk about.
Jun 19, 2013 5:40AM
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Contrary to what the Federal BLS and Fed Reserve like to say, real inflation is well above the "official" rate.  Wage pressures are low, because of foreign cheap production costs.  Since spending power of most consumers has been wiped out because of a worthless dollar and low wages, the economy cannot recover to where it once perched.  Also, the Federal Government prints nearly 1/2 of the money it spends on operation costs.  And the real problem is entitlements, European style welfare will eventually lead to higher unemployment, further redistribution, stifled productivity and in the end, ruin.  History has repeatedly shown that confiscating the wealth of savers end badly for society, the US is no different.  All moves by the Federal Reserve are merely postponing the day of eventual ruin. 

Jun 19, 2013 2:13AM
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Wall Street is dependent on the $85 billion monthly entitlement (welfare) from government (us) and has been threatening to crash if it stops.....................buying our own debt was never a good idea. BTW, the private shareholders of the Fed Reserve are making a killing on the interest from our ever increasing debt which is about to explode in our faces. Then comes anarchy with rioting and looting from the financial collapse..........Hang on to yer guns and butts cause that's all you'll have.
Jun 19, 2013 8:27AM
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Far too many people want all the Benefits which comes with living in the United States but don't want to face the Reality that it cost Real Money, tons of it. We are number ONE in the World because we spend more on our Military than the next 10 Countries Combined. Someone has to pay for that. We are number ONE in the World because we have a Fed system which can print money because of stated Military Strength, enforcing our status aka patents and copyrights, etc. The only folks with a sense of Entitlements are the CEOS and literally every Big Bank.

These folks have told us, we can do whatever we please, whenever we please and you can't do a dam thing about it. Now because of this sense of Entitlement by the Elite, the Global Feds are Printing 24/7 just to keep afloat, the farce balances of all the Big Banks. It's not about creating jobs nor controlling inflation, it's about protecting the very Wealthy and leaving crumbs for the rest of us. Amazingly, some poster seem to be fine and dandy with that BS. The unrest in Turkey and Brazil as the elite spit on the rest of us might be the canary in the Coal Mine. Hopeful it is and workers finally take back their respective countries.

Jun 18, 2013 6:05PM
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The US is leading the world in economic recovery ... posts urged investors months ago to invest in the USA ... now TV broadcasters on Squawk are saying it ... MSN the best stories are in your Posts!!!!
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