Dow, S&P surge as stimulus stays
NEW YORK — The stock market set a record on Wednesday on 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 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 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 during the past 4 1⁄2 years.
The S&P 500 surged 20 points, or 1.2 percent, to 1,725 in afternoon trading, having sliced through its previous 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 record 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 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 Oct. 29.
Wells Fargo's Wells and other investors said the Fed might be waiting to see what happens in Washington 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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.