While you were sleeping Dow, S and P 500 soar as Fed stays put

Thursday 19th September 2013

Wall Street rallied, pushing the Dow Jones Industrial Average and the Standard & Poor's 500 Index to record highs, after the Federal Open Market Committee unexpectedly left the pace of monthly bond-buying program unchanged at US$85 billion.

In late afternoon trading in New York, the Dow Jones Industrial Average gained 0.83 percent, the S&P 500 advanced 0.92 percent, while the Nasdaq rose 0.61 percent. The Dow touched a record 15,644.82 while the S&P 500 hit a record 1,720.36.

"The Committee sees the downside risks to the outlook for the economy and the labour market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market," the Fed said in a statement released at the end of the two-day meeting.

"The Committee recognises that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term," the Fed said. "However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."

The central bank said it now predicts the US economy will expand between 2 percent and 2.3 percent this year, down from 2.3 percent to 2.6 percent in its June estimates. For 2014, it expects the economy to grow between 2.9 and 3.1 percent, down from an earlier prediction for between 3.0 percent and 3.5 percent.

"No taper, the market loves it, we will see if that lasts but boy, we are off to the races," Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts, told Reuters.

"From a short-term stock market perspective it can be seen as a good thing because the market likes to see continued Fed stimulus. From a real economy standpoint, what it says is the Fed is actually more nervous about the economy than is generally perceived," McMillan said.

US Treasuries also gained, pushing yields on the 10-year note nine basis points lower to 2.76 percent. The consensus among analysts had predicted the FOMC would announce the start of easing back its bond-buying program today.

"Wall Street made the mistake of taking silence from the Fed as approval of tapering, when instead the silence was because of a lack of consensus among the policymakers there," Jim Bianco, president of Bianco Research in Chicago, told Bloomberg News.

The US dollar weakened, sliding 0.7 percent against the euro and declining 0.9 percent against the yen.

Shares of Alcoa and Boeing, up 2.7 percent and 1.7 percent respectively, propelled gains in the Dow.

Shares of FedEx gained, last up 4.4 percent, after the company posted first-quarter profit that exceeded expectations.

In Europe, the Stoxx 600 Index rose 0.4 percent from the previous close. Germany's DAX added 0.5 percent while France's CAC 40 increased 0.6 percent. The UK's FTSE 100 shed 0.2 percent.

BusinessDesk.co.nz

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