Dow soars 429 points on Fed statement
NEW YORK, United States — The Fed spoke — and financial markets rallied. The Dow Jones industrial average surged more than 429 points, its tenth highest point gain in history and the biggest since March 2009. It was just one day after the Dow had its worst point decline since 2008.
The Federal Reserve pledged to keep its key interest rate at its record low of nearly zero through the middle of 2013. The central bank also said that it has discussed “the range of policy tools” it can use to spur the economy.
The central bank’s statement means that another of round fiscal stimulus could be on the way as the Fed works to keep those rates low, said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management, which has US$228 billion in assets under management.
In June, the central bank finished its second round of bond buying, also known as quantitative easing, in hopes of boosting the economy. Bob Doll, chief equity strategist at BlackRock said the Fed’s decision to hold interest rates at a very low rate for two years is “unprecedented” and called it a kind of backdoor quantitative easing.
“Markets are going to do what they would have done if the Fed went out and bought securities,” Doll said. “This will push investors… back into equities.”
He expects stocks to continue to rally because a slowly-growing US economy won’t harm corporate profits. “Corporate America has demonstrated that it can generate good growth and profits despite a weaker US economy,” Doll said.
The Dow rose 429.92 points, or four per cent, to 11,239.77. It’s a significant turnaround from Monday when the Dow plunged 634.76 points in the first trading day after Standard & Poor’s downgraded the U.S. one notch from its top AAA credit rating to AA+.
The S&P 500 rose 53.07, or 4.7 per cent, to 1,172.53. The Nasdaq composite index rose 124.83, or 5.3 per cent, to 2,482.52.
At first, markets reacted much differently to the Fed’s statement. Stocks fell after the Fed’s 2:15 pm EDT statement. Gold surged to more than US$1,774 per ounce. The yield on the 10-year Treasury note briefly touched a record low of 2.03 percent.
As stocks rallied, the yield on the 10-year Treasury note quickly headed higher. It was at 2.26 per cent late yesterday. A bond’s yield drops when its price rises.
