Dow, S&P set records as Fed continues stimulus

Stocks soar after the central bank says it wants more evidence of a strengthening economy before weaning markets slowly off massive injections of cash.

By Charley Blaine Sep 18, 2013 2:10PM
Fed Chairman Ben Bernanke, left, with Treasury Secretary Jack Lew. © Gary Cameron/ReutersUpdated: 6:03 p.m. ET.

The Federal Reserve shocked -- and delighted -- financial markets Wednesday afternoon by deciding to hold back on trimming its $85 billion-a-month bond-buying program.

The decision to continue its bond-buying set off a sharp rally in stocks. The Standard & Poor's 500 Index ($INX) and the Dow Jones industrials ($INDU) reached new intraday highs and set new closing highs. The Nasdaq Composite Index ($COMPX) closed at a 13-year high. Interest rates fell.

The decision was announced after a two-day meeting of the Federal Open Market Committee, the central bank's policy-making body. Fed Chairman Ben Bernanke, pictured, was holding a news conference to discuss the decision.

The Fed explicitly said it wanted more evidence that the economic recovery has enough strength to weather cutting back the bond buying, often called quantitative easing. The Fed is currently buying $45 billion a month in Treasury securities and $40 billion a month in mortgage bonds. The program was started in a bid to boost the economy, especially the housing market.

The Dow closed up 147 points to 15,677 after setting a new intraday high of 15,709.58. The S&P 500 gained 21 points to 1,726. It an intraday high of 1,729.44. The Nasdaq had added 38 points to 3,784, its best finish since Sept. 22, 2000, when the index closed at 3,803.76.

The big rally also pushed futures prices higher for gold (-GC), silver (-SI), platinum (-PL), copper (-HG) and crude oil (-CL). Retail gasoline continued to drift lower, however, averaging $3.506 a gallon, according to AAA's Daily Fuel Gauge Report.

The 10-year Treasury yield fell to 2.71% Wednesday from 2.853% on Tuesday. The yield had briefly touched 2.9%. The yield is important because it has a heavy influence on mortgage rates. As yields fell, financial, homebuilding and automotive stocks moved higher.

Talk that the Fed might scale back its bond buying pushed interest rates higher starting in May. The 10-year Treasury yield moved up from as low as 1.61% in early May to nearly 3% on Sept 5.

The recent rise in interest rates -- what the Fed statement called "the tightening of financial conditions observed in recent months" -- prompted the decision. The rate increases, "if sustained, could slow the pace of improvement in the economy and labor market," the statement said.

At the same time, The Wall Street Journal noted, Fed officials see weaker growth and slower inflation than they did before. Indeed, the Fed's central tendency projections were trimmed. Governors and presidents of the 12 Federal Reserve banks see the economy showing 2% to 2.3% annual growth in the fourth quarter. That's down from a June projection of 2.3% to 2.6%.

In 2014, the group sees overall growth at 2.9% to 3.1%. They had projected 3% to 3.5% in June.

Wednesday's decision means interest rates on everything from home mortgages and car loans to corporate expansion should remain at low levels. Bankrate.com said the rate on a 30-year home mortgage was 4.5% on Wednesday, down from 4.6% a week ago. Rates have hovered around 4.5% since June.

But the decision is also mindful that the recovery has been weak by historic standards. Unemployment is falling grudgingly, and the labor participation rate -- people involved in job markets compared with the overall population -- is at 63.2%, the lowest level since the summer of 1978. (It peaked at 67.3% in the winter and spring of 2000.)

Tapering will come. IHS Global Insight economist Paul Edelstein thinks the Fed will announce tapering in December.

But the Fed expects it won't consider raising rates unless the unemployment rate drops under 6.5% and inflation exceeds its 2%-a-year inflation target by a half percentage point. The target for its federal funds rate -- the target for banks making overnight loans to each other -- remains at 0% to 0.25%. Bernanke said at his new conference that rate probably won't rise much over the next 18 months. Fed officials see the federal funds rate rising only to 1% at the end of 2015.

What the Fed didn't say in its statement was its worries about the looming fights over the federal budget and the efforts to raise the nation's debt ceiling.

When the question was raised at the news conference, Bernanke said that a government shutdown and, especially, a failure to raise the debt ceiling could have "very serious consequences" for financial markets and the economy.

With today's performance, the Dow is up 19.6% for the year. The S&P 500 has gained 21%. The Nasdaq is up 25.3%. For September so far, the Dow has risen 5.9%, with the S&P 500 up 5.7% and the Nasdaq up 5.4%.

This was a broad rally: 29 of the 30 Dow stocks were higher, led by Alcoa (AA), up 30 cents to $8.56. The laggard was UnitedHealth Group (UNH), down $1.27 to $73.04. That's investors worried that Republicans will succeed at de-funding the Affordable Healthcare Act -- also known as Obamacare. UnitedHealth was expected to gain many new subscribers under the health-care law.

A total of 436 S&P 500 stocks were higher, led by Adobe Systems (ADBE), gold-producer Newmont Mining (NEM) and homebuilders D.R. Horton (DHI) and Lennar (LEN).

FedEx (FDX) was up $5.57 to $116.25 after fiscal-first-quarter results beat estimates. What's helping: cost-cuts and promotion of cheaper shipping options.

Meanwhile, 84 stocks in the Nasdaq-100 Index ($NDX) were higher, led by Adobe and Randgold Resources (GOLD).

Thursday could see some pressures on stocks. Oracle (ORCL) shares were off 3% after hours to $32.80 after revenue for its fiscal-first quarter revenue missed estimates. And it trimmed its guidance for the second quarter to 65 cents to 70 cents a share; the Street had been looking for 70 cents.

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313Comments
Sep 18, 2013 2:19PM
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All I can say is the Fed continues to play a very dangerous game. They are digging themselves a deeper and deeper hole, out of which they will be unable to climb. They are trapped in the trap they set for themselves. The next few years are going to be very interesting. Keep your powder dry. 
Sep 18, 2013 2:52PM
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This is getting scary. They have dug themselves in so far they are afraid to begin pulling out.  It will have to wait until Bernake leaves or we have a currency bubble go burst and high inflation. I am 64 years old and this is the worst crew of people ever assembled in Washington.  It is like a giant bowl of blundering idiots.
Sep 18, 2013 2:21PM
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Spend spend spend! Why not...it' s not their money! God help us...
Sep 18, 2013 2:19PM
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The Fed expects it won't consider raising rates unless the unemployment rate drops under 6.5% and inflation exceeds its 2%-a-year inflation target by a half percentage point.
Looks like the Fed will keep the stimulus going indefinitely. Smart, really smart. (sarcasm)
Sep 18, 2013 2:27PM
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No courage. The FED had an opportunity to begin to do the right thing. They are going to continue to buy $40B a month in mortgage backed securities. They tell us the housing market is recovering? Not without daddy's help every month. Take that $40B away then see what happens to housing. Dow is up, precious metals are up, and faith in the US dollar is deteriorating. Bubbles are growing. Protect yourselves investors, you have a little more time now that the can has been kicked down the road.
Sep 18, 2013 2:20PM
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Whatever makes the 1% happy and the middle/lower class poor.  Beyond me on what to think about this anymore.  Lets wait until 3.5% inflation before we taper.  That will help!  Inventories will rise.  No corporation in their right mind will be hiring more, just pocketing more money.  I don't see a way out, "Ride the Wave".
Sep 18, 2013 2:52PM
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Stop spending, raising the debt limit, and pass the budget
Sep 18, 2013 2:43PM
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Un.....F'ing real. The printing press continues to print worthless toilet paper and the stock market eats it up. the rich 1% are making a killing in pretend money.
Sep 18, 2013 2:37PM
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If in fact today's news is setting off a big wall street day, watch the f  out when they put the brakes on.
Sep 18, 2013 2:41PM
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LOOK OUT BELOW. The foundation is crumbling. Orcastrated by crooks liars and thieves.
Sep 18, 2013 2:44PM
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The rise in interest rates are a RESULT of fear of Fed tightening.  So will the Fed never tighten because it will cause interest rates to rise?  This is ludicrous thinking.  The economy and the stock market have to stand on their own two feet sometime before we reach the point of no return, which is where the fed actions are taking us.
Sep 18, 2013 2:47PM
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The insanity continues! Ben keeps dealing the drugs and the junkies (stock markets) party on! The Fed is a gutless embarrassment! God help our future generations!!
Sep 18, 2013 2:54PM
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The FED just admitted that they have no way out. The day the FED stops buying assests, and beging to taper, the market crashes. If they keep QE going the value of the dollar and people's savings and retirement accounts keeps going down, all while the cost of essentials like a gallon of gasoline and food keeps going up. Eventually value of the dollar becomes worthless, end of the U.S. Dollar as fiat currency, end of the USD as the world's Reserve Currency. Even if the first two don't happen, all we need if for interest rates to go up and the US. government will not even be able to pay the interest on the money it owes. Again, game over. Regardless of what the FED does from now on, things end badly.
Sep 18, 2013 2:47PM
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Ben no balls Bernanke just keeps the nipple flowing to all the babies on wall street.What a fukking mess!
Sep 18, 2013 2:50PM
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Too bad that the stock market is not reaching historic record levels because of a good and real economy based upon sound fundamentals.. Quantitative Easing, just like methamphetamine makes the user feel good, it rots the host from the inside out and leaves it incapable of proper function. In this case, the host is our nation. This Quantitative Easing should be called what it is, a smoke screen used by the media for the protection our impotent national leaders, especially the unqualified one at the top, Barack "Jimmy Carter" Obama.
Sep 18, 2013 2:24PM
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I hope traders who manipulated the markets were burned ,,, they are the cesspool of Wall Street . Traders manipulated to profit, the Fed based its decision on wanting to help the economy and create jobs. 
Sep 18, 2013 2:46PM
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and tomorrow everyone will wake up and realize this means things are still weak in the economy and the market will drop 200....

Sep 18, 2013 3:02PM
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To quote a great fantasy American- "Stupid is as stupid does". And so the beat goes on !! The inmates are running the asylum .

Sep 18, 2013 2:47PM
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The FED never stated to the Public at Large that they were going to Taper today. All this imminent taper talk was coming from the Main Stream Media. In Fact, Uncle Ben stated in the last meeting that the Fed reserved the right to Raise or Lower the amount of Buying. The only Surprise, that Main Stream Media had it so wrong when Uncle Ben never stated such concerning today.

So we are back to exactly to same problem as before, a FED printing to infinity, with no safe way out. The Next FED Chief will be trapped forever by the worst FED Chair, ever. Uncle Ben didn't have the stones to do what's right, no shock there since he created this mess. It would have took courage to Taper, it's gutless to do the same old same old, especially when you are stepping down. So the Real Work will be left to next guy/gal inline. They will have a literally impossible task, so thanks for nothing Uncle Ben.

Sep 18, 2013 2:35PM
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OKAY you a-holes I EXPECT mortgage rates to drop back down then...
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