Why Did the Dow Rally Today?

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If you look at the Dow Jones Industrial Average‘s performance today, something moved the market in a big way right around 2:00 PM EST. The major indices started the trading day on a shaky footing, staying firmly in the red through mid-afternoon when something clearly excited investors.

Federal Reserve Operation Twist

In the span of a few hours, the Dow surged 200 points higher from its intraday low. What happened to cause such a commotion on Wall Street?

Well, this afternoon the Federal Open Market Committee (FOMC) released a statement regarding the central bank’s policy decisions. Wall Street got the news that it wanted, which was that an interest rate hike would be “unlikely at the April FOMC meeting.”

That’s Fedspeak for “we’re not touching interest rates until we see 2% inflation.”

Given that consumer prices have fallen for three straight months (according to the January CPI report), this makes sense. Over the past 12 months, core consumer prices (a key measure of inflation) have risen just 1.6% — well below the Federal Reserve’s 2% inflation target.

In this deflationary environment the Fed is under pressure to keep rates low. If the Fed were to raise rates prematurely, the dollar would surge higher, causing instability in the global financial markets.

As I’ve explained in recently, the Fed policy is a boon for the stock market. The ultra-low interest rates allow corporations to borrow very cheaply on the bond market and then use those proceeds to buy back their stocks. Sometimes earnings-per-share and oftentimes share prices get boosts when companies buy back their stocks.

So, the Fed’s latest announcement is clearly what caused the benchmark indices to rally. Beyond breaking the market’s latest losing streak, the Fed’s announcement is also bullish for the market in the long run.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/dow-the-fed-federal-reserve-interest-rates/.

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