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Stock market hits record after Fed keeps stimulus

By Ken Sweet

AP Markets Writer

POSTED:
LAST UPDATED: 01:25 p.m. HST, Sep 18, 2013


NEW YORK » The stock market hit a record high today after the Federal Reserve's surprise decision to keep its economic stimulus in place.

Bond yields fell sharply -- their biggest move in nearly two years. Meanwhile, the price of gold jumped as some traders anticipated that the Fed's decision might cause inflation.

In a statement, Fed policymakers voted to maintain the central bank's $85 billion-a-month bond-buying program, which has been in place in one form or another since late 2008. It is designed to keep interest rates low to spur economic growth.

While the U.S. economy appeared to be improving, the bank's policymakers "decided to await more evidence that progress will be sustained" before deciding to slow bond purchases. The bank also cut its full-year economic outlook for this year and the next.

Stock traders shrugged off the Fed's dimmer economic outlook and focused on the continued stimulus, a big reason for the market's bull run over the last 4-1/2 years.

The S&P 500 surged up 20 points, or 1.2 percent, to 1,725 in afternoon trading, having sliced through its previous all-time high of 1,709.67 set on Aug. 2.

The Dow Jones industrial average jumped 153 points, or 1 percent, to 15,683, also above its previous record high of 15,658, also set Aug. 2.

Some investors advised caution, even with stocks hitting all-time highs.

While the Fed's decision is positive for the market in the short term, "investors need to take a step back and consider the idea that maybe the U.S economy is on weaker footing than we originally thought," said Marc Doss, regional chief investment officer for Wells Fargo Private Bank.

Bond prices also rose sharply, sending yields lower. The yield on the 10-year Treasury note fell to 2.68 percent from 2.87 percent a minute before the Fed released its statement -- a push into bonds by investors not seen since October 2011. That yield is a benchmark for many kinds of lending rates, including home mortgages.

The price of gold jumped $55, or 4 percent, to $1,364 an ounce.

The fate of the Fed's economic stimulus program has been the biggest question on Wall Street for months. It was widely expected that the Fed would cut back on its bond buying at its September meeting.

Tom di Galoma, a bond trader at ED&F Man Capital, said he was "completely shocked" that the Fed decided to wait

In June, Fed Chairman Ben Bernanke laid out a plan to start easing up on the bond-purchase program, and pledged to end it by the middle of 2014, if the economy continued to improve. The Fed's next meeting is October 29-30.

Wells Fargo's Wells and other investors said the Fed might be waiting to see what happens in Washington, D.C. in the coming weeks. A debate over the debt ceiling and the showdown between Congressional Republicans and the White House over the budget looms.

Matt Tom, head of public fixed income at ING U.S. Investment Management, said the Fed's decision to keep the stimulus unchanged likely happened because Bernanke wanted to make sure the economy was ready to function without its help.

Cutting back before the economy was ready would have been much more destabilizing to the market, he said.







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mikethenovice wrote:
QE will continue until the GOP shake hands with the Democrats.
on September 18,2013 | 10:50AM
NanakuliBoss wrote:
Waiting for the doomsayers to chime in below. "Go ahead, make my Dooms day".
on September 18,2013 | 10:55AM
Kuniarr wrote:
The US economy blossomed during an economic stimulus like in WWII and in the 1930's because the US manufactured all if not most consumer products sold in the US. China and other 3rd world countries imported finished parts from the US and exported the finished product.

Today, the US imports finished parts and assembles them while China now manufactures those parts.

That is the realities that both Democrats and Republicans do not recognize. With the exception of Romney..
on September 18,2013 | 01:35PM
lee1957 wrote:
Maintaining the bond buying program is a polite way of saying they are keeping the printing presses running.
on September 18,2013 | 11:24AM
tiki886 wrote:
Obama and his Commie friend to stop printing money, borrowing and spending! We have record numbers of unemployment, food stamp recipients and welfare. That's the legacy of the Obama Administration.
on September 18,2013 | 11:28AM
Nevadan wrote:
QE = Questionable Earning?
on September 18,2013 | 02:22PM
HD36 wrote:
Most people don't have a clue what's happening. What's the big deal? They're buying bonds and mortgage backed securities. Realize this: The Federal Reserve must either sell the Treasury Bonds or let them manture. Aslo, we are relying on China, Japan, OPEC, etc... to keep buying bonds, ie loaning the US government more money to spend. This only confirms the thesis that the Fed has checked into a roach motel with no way out. They can't taper quantitative easing or else the economy will collapse, yet if they keep monetizing the debt the currency will collapse along with the bond market. The only thing backing the US dollar right now is our millitary might.
on September 18,2013 | 03:28PM
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