After a modest start with some early buying, investors ignored early economic data yesterday, and awaited the release of the FOMC’s minutes from the February meeting and its decision on interest rates. By 2 p.m., prices were very close to breakeven, and the tension was high as all awaited the rate decision.
As usual, the decision came just before 2:15 p.m., and the news spread that the Fed has decided to keep the target rate for federal funds at 0% to 0.25%.
The Fed said that economic activity has continued to strengthen and that the labor market is stabilizing. It also said that “it continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The Fed went on to say that “the U.S. economy remains in a weakened state that will likely warrant low borrowing costs a while longer as a partial remedy to encourage activity.”
Following the announcement, the market immediately picked up buying and rallied until the close.
Financial stocks again led after trailing the market in the morning, and closed with a gain of 1.7%. The materials sector, up 1.5%, had some of the biggest subsector gains, with steel stocks up 2.9% and gold stocks up 3.2%.
At the close, the Dow Jones Industrial Average (DJI) was up 44 points to 10,686, the S&P 500 (SPX) rose 9 points to 1,159, and the Nasdaq (NASD) gained 16 points to 2,378.
The NYSE traded just over 1 billion shares with advancers ahead of decliners by a margin of 3-to-1. The Nasdaq traded 605 million shares and advancers led by 17-to-10.
April crude oil rose $1.90 to $81.70 a barrel on the improved Fed outlook. The Energy Select Sector SPDR (XLE) closed at $58.42, up 52 cents.
April gold gained $17.10 to settle at $1,122.50 an ounce, and the PHLX Gold/Silver Sector Index (XAU) gained 4.41 points to 169.92.
What the Markets Are Saying
The S&P 500, after three straight closes at the January high of 1,150, finally broke through the barrier and closed over 9 points above it. The number, of course, has no real meaning except that it has resisted for so long, so the breaking of it has an enormous psychological impact and will certainly be mentioned this morning in every financial publication around the world.
But despite the S&P’s breakout and the supportive policies of the Fed, the Dow and the NYSE Composite are still trading below the January highs. And volume is still not supporting a general breakout. The NYSE traded just 1.1 billion shares yesterday, so the final word is not yet in regarding the broad market’s ability to sustain a major move higher.
Yesterday’s rally was again led by the small- and mid-cap stocks as the Nasdaq, the Russell 2000 (RUT) and the S&P MidCap 400 Index (MID) all hit new highs. All the internal indicators are overbought, and have been for three weeks, and the sentiment indicators, too, say that the danger flags are flying with the chance of a reversal down getting greater with each new high.
One area that appears to be picking up buyers is precious metals. After a two-week round of profit-taking, the bullion and gold and silver mining stocks have reversed to a strong near-term uptrend. Rumors of strong Chinese buying persist, but whatever the reason, gold is back in favor and remains one of the most sought-after defensive sectors in a time of turmoil.
Today’s Trading Landscape
Earnings to be reported before the opening include: AC Moore, Actuant, Schiff Nutrition, Somanetics and Tsakos Energy.
Earnings to be reported after the close include: Clarcor, Guess, Herman Miller, IHS, Nike and STR Holdings.
Economic reports due: MBA purchase applications, producer price index (the consensus expects -0.2% and 0.1% ex-food and energy), and the EIA petroleum status report.
Related Articles:
Top 5 Stocks for 2010
These must-have companies are just hitting their stride and are poised to outperform the market in the short-term. Investing pro Louis Navellier reveals his top five picks for 2010 in this free stock guide — download your FREE copy here.
