Stocks end higher on Fed comments
Published: April 30, 2009, 12:30 am
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NEW YORK — The Fed confirmed what Wall Street has already concluded: The recession is starting to ease.
Federal Reserve policymakers said at the end of a two-day meeting Wednesday that while the economy is still receding, the pace of decline “appears to be somewhat slower” than the last time they met in mid-March.
That was assurance enough for the stock market. Major indexes, which had already been up sharply ahead of the announcement on other signs the economy is stabilizing, posted gains of more than 2 percent. The Dow Jones industrial average jumped 169 points to its highest close since Feb. 9. Bond yields rose as investors sold off government debt, a safe-haven investment.
“You had the Federal Reserve endorsing the basic stance that the economy is beginning to stabilize,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
The Dow is now 25 percent above its early March lows, though stocks have been unsteady over the past several days on fears of a potential swine flu pandemic and persistent concerns about the country’s biggest banks.
Stocks began the day higher as investors responded to bright spots within a weaker-than-expected report on the nation’s economic output for the first three months of the year.
Gross domestic product contracted at an annual rate of 6.1 percent, much steeper than the 5 percent forecast by economists polled by Thomson Reuters. But the glimmers of good news in the report drove the Standard & Poor’s 500 rose to its highest trading level since late January.
Investors were encouraged by a rebound in consumer spending, which accounts for more than two-thirds of U. S. economic activity, and a drop in business inventories. On President Obama’s 100th day in office, the GDP report at least provided signs that the nation is seeing its economic slide start to moderate.
In the January-March quarter consumers came back to life, boosting their spending after two straight quarters of reductions. The 2.2 percent growth rate was the strongest in two years.
Much stronger demand for big-ticket “durable” goods, including cars, furniture and household appliances led the increase. That spending rose at a 9.4 pace, the most in a year. Consumers also boosted spending on clothing, shoes, recreation services, medical care, gasoline and other energy products. But not on food, where spending dipped slightly.
Still, the consumer rebound was swamped by heavy spending cuts in virtually every other area.
Businesses cut spending on home building, commercial construction, equipment and software, and inventories of goods. Sales of U. S. goods to foreign buyers plunged as they retrenched in the face of economic troubles in their own countries. Even the government trimmed spending. It was the first time that happened since the end of 2005.
All told, the economy logged its worst six-month performance since the late 1950s.
The Dow jumped 168.78, or 2.1 percent, to 8,185.73 Wednesday. The gain leaves the blue chips down about 591 points, or 6.7 percent for the year.
The Standard & Poor’s 500 index gained 18.48, or 2.2 percent, to 873.64, its highest close since Jan. 28.
The Nasdaq composite index advanced 38.13, or 2.3 percent, to 1,711.94. The tech-heavy index posted its highest finish since Nov. 4 and is up 8.6 percent for the year.
About five stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 6 billion shares compared with 5.3 billion shares traded Tuesday.
Michael Sheldon, chief market strategist at Westport, Conn.-based RDM Financial, said the drop in business stockpiles “should set the stage for a pickup in production, employment and profits.”
Better-than-expected earnings have been boosting the market as well. Media conglomerate Time Warner said its first-quarter profit fell 14 percent on deteriorating ad sales, but the results were better than expected. Defense contractor General Dynamics Corp.’s first-quarter earnings rose 3 percent on sales of warships and other military equipment.
Time Warner rose 21 cents, or 1 percent, to $21.98, while General Dynamics rose $2.73, or 5.4 percent, to $53.34.
Investors are still keenly focused on the financial sector, though.
Bank of America Corp. held a contentious annual meeting Wednesday. Shareholders ousted Ken Lewis as chairman after shareholders angry about the company’s acquisition of Merrill Lynch & Co. voted to separate that job from the one of chief executive. The Charlotte, N. C., bank is one of the biggest recipients of government support.
Meanwhile, Citigroup Inc., which has also received large amounts of federal aid, is trying to figure out how to retain workers. Citigroup CEO Vikram Pandit has talked with Treasury Secretary Timothy Geithner about the possibility of paying special bonuses to keep demoralized workers from getting scooped up by competitors, a person familiar with the matter said. The person, who spoke on condition of anonymity, was not authorized to disclose details about the private talks.
According to a report in The Wall Street Journal late Tuesday, some key employees are threatening to leave the company because of pay restrictions the government placed on the bank.
Bank of America rose 53 cents, or 6.5 percent, to $8.68, while Citigroup rose 23 cents, or 8 percent, to $3.12.
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