Stocks extend Fed rally

Global shares soar after the Fed announces QE3. US consumer prices rise the most in 3 years. Retail sales and consumer sentiment post surprising gains, while industrial production falls the most in 3 years. UnitedHealth replaces Kraft in the Dow.

By Melly Alazraki Sep 14, 2012 9:25AM
stock marketLast updated 11:11 a.m. ET

Stocks soared again Friday, a day after reaching multiyear highs on news that the Federal Reserve would launch more stimulus measures. U.S. economic data on Friday helped boost stocks.

The Dow Jones Industrial Average ($INDU) was up 64 points at 13,604. The S&P 500 ($INX) was up 9 points at 1,469. The Nasdaq Composite ($COMPX) was up 32 points at 3,188.

The Fed announced Thursday it will begin a third round of quantitative easing, hoping to breathe life into the economy, and particularly jump-start the labor market. The dollar continued to weaken against major currencies after the Fed's announcement.

Bank of America (BAC) led financials higher for the second session in a row following the Fed's announcement. Also, energy stocks such as ExxonMobil (XOM) and Chevron (CVX) are higher as crude trades near $100.

The Fed's easing measures
On top of promising to keep interest rates at "exceptionally low levels" until mid-2015, the Fed will buy at least $40 billion a month in mortgage-backed securities to ensure that rates stay low. The Fed will also continue to reinvest proceeds from maturing securities it already owns. Together, both programs will increase the Fed's holdings of longer-term securities by $85 billion a month.

The Fed will continue to purchase assets, and purchase even additional assets, until the labor market's outlook has improved. In the past six months, Fed Chairman Ben Bernanke said, job growth has been week, and he wants to see a much stronger growth.

What about inflation?
Critics charged that Bernanke and the central bank have lost track of the Fed's other objective -- price stability -- and that the measures could spark inflation. Wholesale prices rose in August mainly because of a surge in energy prices.

On Friday, the Labor Department said U.S. consumer prices increased by 0.6% in August, in line with economists' expectations, as gasoline prices rose by the largest amount in more than three years. Gas prices surged 9% last month, while food prices rose just 0.2%.

Excluding food and energy costs, which tend to be volatile, the core price index rose 0.1%, below the 0.2% increase economists had expected, according to Briefing.com. With CPI rising and wages stagnant, average hourly earnings for U.S. workers fell 0.7% in August.

Consumer prices have climbed 1.7% over the past 12 months and 1.9% on a core basis, within the Federal Reserve's 2% target for inflation.

More economic data
Retail sales in the U.S. increased by 0.9% in August, the most in six months, boosted by demand for autos and higher gasoline prices, as well as back-to-school sales. While that is better than the 0.7% rise economists had expected, according to Briefing.com, it points to only modest growth in the third quarter. The Commerce Department also revised the July figure lower to 0.6% from 0.8%.

Industrial production fell 1.2% in August, its biggest monthly percentage drop in more than three years, in part because of Hurricane Isaac but also because of a big drop in car output. That was also well below economists' expectation for a decline of 0.2%. The decline in industrial production causes concern about the recovery of this sector in the economy.

Consumer sentiment climbed higher in September to 79.2, the highest level since May, according to reports on the University of Michigan-Thomson Reuters consumer-sentiment gauge released Friday. Economists had expected the index to decline to 73.5 from the final August reading of 74.3. While higher than expected, the index is well below its pre-recession levels.

Business inventories increased 0.8% to a record $1.59 trillion in July, posting their largest gain in six months, boosted by an increase in automobile stocks, according to the Commerce Department. Economists had expected a 0.4% rise, according to Briefing.com. Inventories are a key component of gross domestic product changes, and July's increase could be a sign of growth.
Global markets follow US rally
Asian shares posted a strong rally Friday after the Fed's launch of QE3. Interestingly, Asian countries may be less likely to enact loosening measures of their own after the Fed's move. South Korean equities also got a boost after Standard & Poor's upgraded the country's long-term credit rating by one notch to A+.

European markets also rallied Friday, as they played catch-up with North American markets. The Fed's move comes a week after the European Central Bank announced an unlimited bond-buying plan, and a day after a German court allowed the country to ratify the eurozone's rescue fund.

Meanwhile, investors will also be watching for any news about Europe's sovereign debt crisis as European finance ministers meet in Cyprus.


Stocks to watch
UnitedHealth Group (UNH) will join the widely followed 30-stock blue-chip index, the Dow Jones Industrial Average, replacing Kraft Foods (KFT). Kraft is leaving the index because of its plan to spin off its North American grocery business, which will be renamed the Mondelez Group on Oct. 1. The change will become effective with the opening of trading on Sept. 24.

The Dow Jones Averages Index Committee said in a statement that it believes Kraft's plan will "reduce market capitalization" and revenue, making the company "less representative of the U.S. large cap market space."


Apple (AAPL) shares advanced even after they again on Thursday closed at an all-time high of $682.98. The computer and gadget maker on Wednesday unveiled its latest smartphone, the iPhone 5, which adds many of the features that have become standard with high-end smartphones. Investors hope it will help Apple regain lost ground to Samsung and other smartphone makers that use the Google (GOOG) Android system. Already, MarketWatch says, preorders for the phone may have sold out.

Amazon (AMZN) shares also closed at an all-time high.

Is Home Depot (HD) giving up on China? The home improvement retailer said it will close all seven of its big-box stores and cut 850 jobs in the country.


Shares of Staples (SPLS) advanced after a report by Fortune that several private-equity firms, including Bain Capital, are considering a buyout offer for the office supplies retailer.

290Comments
Sep 14, 2012 9:43AM
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Here we go again.... printing more money and chasing windmills.
Sep 14, 2012 10:13AM
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I have more money now than I had before (of course it's actually worth less than it was before so my purchasing power has not increased, in fact it has probably decreased) but if you look at this economic move just the 'right' way, with a certain colored glasses on, it can be viewed as a good thing.

It also helps if you plan on dying soon, because then you won't be around when the 'payback' comes.  Everyone knows - Payback is a Bitch.
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Holy Toledo Batman,

 

Let's see the Federal Reserve said that even with zero percent interest rates until 2015 that the US economy was so weak that they were going to pour $80 billion into the housing market to keep it afloat $40 billion directly and another $40 billion as assets they already have mature.

 

This is another $1 trillion dollars they are throwing at the US economy on top of what they have already thrown at teh US economy of over $3 trillion. And they still fear the US economy will become even weaker.

 

Gee people the crisis bail out was suppose to only be $750 billion now it is over $4 trillion (not even counting the off balance sheet infusion of over $24 trillion the Fed has been doing in stealth mode) and we are still catch in a Death Spiral of LOST JOBS and an ever weaker and weaker economy.

 

Why can you say any of this is good??? The US economy is going down the tubes faster and faster and most think it is a good thing.

 

With the fourth straight year of average wage decreases for the American worker how in the world do you think any of this is going help?

 

The housing bloom is merely investors buying properties and selling them to other investors.

 

We are in a much much bigger asset bubble than ever before and when it bursts there is no coming back for the US.

 

We have already lost the world reserve currency status so our debt problems are going to become more and more of a burden going into the future.

 

You think this is all good news?? You should be afraid very afraid of the total collapse coming.

Sep 14, 2012 10:11AM
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Federal Reserve is laundering the money through wall street banks again...........now you slaves get to work so they can pay you pittance, charge you interest and taxes, run you into bankruptcy, and take everything you've worked for once again.
Sep 14, 2012 11:28AM
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We had a .com bubble under Clinton, a housing bubble under Bush, and now a stock market bubble under Obama. It all ends badly.
Sep 14, 2012 10:06AM
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QE3 is nothing more than an outright admission that Barack "Jimmy Carter" Obama is a failure, incapable of and unwilling to help the economy in ways that a President can and should. Obama must be defeated in November 2012 if our nation is to survive and not become a third world country. The world depends on a strong and prosperous United States and Obama is doing everything he can to destroy us as a nation.
Sep 14, 2012 10:21AM
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Dennis Duffy

You seem to think people complain about QE3 because we are not invested to take advantage of it.  Maybe, just maybe people on here care more about their country then thier own interests.  Maybe just maybe they realize that if the country falls those assets won't be worth the paper or the online spread sheet there printed on.

Sep 14, 2012 11:31AM
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It is always a pleasure to read the business blogs.  They are 90% business people who actually understand marketing, economics and the stock market,  The other 10% are on as paid dnc operatives to act as "spoilers." 

 

Back to the posters commenting on the fallacies in stock market manipulation. The current admin EXCLUDES food and gasoline from their inflation calculations.  Both have jumped in the 25% range in the past 4 years.  The only people who know are those of us who drive to work and pay for our own groceries.  The welfare queens are not affected bcause they don;t worki / stay at home and eat food paid for by the rest of us.   

Sep 14, 2012 9:51AM
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Please call your Senators, and congressman, ask them why the dollar in your pocket just dropped another 1/2 a penny?

Where does the Fed get it's money to purchase anything? What product do the sell?  What service do they provide?

We need to stop this insanity NOW!
Sep 14, 2012 10:05AM
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Forget buying mortgages, will the Federal Reserve buy my house/
Sep 14, 2012 9:46AM
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THIS COUNTRY IS GOING DOWN HILL, WHO IS GOING TO PAY BACK THE EVEN BIGER DEBT
Sep 14, 2012 11:34AM
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There is no true volume on Wall Street, it's a farce. Wall Street has been artificially inflated and setting the stage for the next big bubble. It's no surprise. All the bureaucrats are in denial and in awe after being dumb struck . No one on both sides of the aisle is doing a damn thing. They just don't care, they continue to let the Fed perpetrate the ponzi scheme even further and deeper with fiat money, inflation and a monstrous devalued dollar. This is true genius folks, you can't make this stuff up. Wow! Unfreaking believable!

Sep 14, 2012 9:54AM
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so still another reason for oil to go up......

 

>>>>(AP) - The price of oil broke above $100 a barrel on Friday for the first time since early May after the U.S. Federal Reserve announced a plan to jolt the U.S. economy and unrest in the Middle East heightened supply concerns.<<<<

Sep 14, 2012 9:42AM
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And the bubble continues to inflate.  Bernanke should have stopped blowing a long time ago, but I guess he just felt obligated to compensate for all of Obama's sucking.

So for now, we're stuck with a Fed chief who blows and a POTUS who sucks.  Hard to imagine that  with all this blowing and sucking going on, there still aren't any happy endings.
Sep 14, 2012 11:30AM
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Why lets see...  Helicopter Ben says he  will print a 1/2 trillion in new dollars next year.  The market immediately readjusts prices to reflect this currency debasing and everyone is happy?   Specie and commodities rally immediately  to this news as well....

Sounds a lot like, hey we are devaluing the dollar 11% this year, if you accept dollars better raise your prices that much...

Of course, I bet you won't see any 11% increase in wages to offset the loss of purchasing power...

The only ones rejoicing are the irresponsible debtors, and the EXPENSE of the responsible savers.

This should actually increase unemployment.  It is nothing to be happy about.
Sep 14, 2012 10:41AM
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Yeah, core inflation is below expectations once they strip out "volatile" food and energy.  This is great since I never need to use either one.  The government will strip away and substitute until the inflation number is low enough to justify the reckless use of QE3 which will once again have no meaningful impact on our labor markets.  Our policy makers are frauds.  My children will be stuck paying for the debts of this administration for generations to come.  We're issuing short term debt to buy long term debt to keep rates low?  Even a child knows that borrowing from Peter to pay Paul never works.  If the stock market wasn't a global Ponzi scheme, then it would adjust to the long term negative consequences of these tired actions.
Sep 14, 2012 10:13AM
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Amazing how the Federal Government is only helping Wall St. and the rich. Stocks are higher than they should be and helping them out is only hurting the middle class. Oil is at $100 a barrel when last year at this time it was $74, but Bernanke keep helping those rich people. The rest of the world doesn't count. By the way Ben how much did they pay you for this act of kindness. Time to pick up the weapons and do like Robin Hood. Take from the rich and give to the poor.
Sep 14, 2012 9:51AM
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More nails in the dollar "every month" until the unemployment # (participation #) not the actual number looks better.
40B a month until ???
Sep 14, 2012 10:24AM
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The only way to get all of our prices down again is to CRASH THE MARKET...............remember 2008?  The markets crashed and the price of gas dropped to around $2.50, Nat Gas dropped, heating dropped, electric dropped, etc.

 

Yes, it's a painful process, but unfortunately a necessary evil and the only way to stop this money laundering inflation that the Feds are creating.  And, in the long run, the economy has become healthier even with high unemployment...........when the economy becomes healthier (because of deflating prices) the jobs will follow.

Sep 14, 2012 9:47AM
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Barry keep telling us that everything is getting better. Although he needs more time and Barnicle Ben continues to take more drastic action to cover for his ignorance.
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