Dow hits record; Fed rates stay low
New York – — The stock market got the reassurance it wanted from the Federal Reserve Wednesday.
The U.S. central bank signaled that it would keep its short-term interest rate near zero for a while yet, and investors pushed the Dow Jones industrial average to a record high. Low rates have been a boon to the market by helping stimulate the economy and making stocks more attractive compared with bonds.
“The Fed is not going to take the punch bowl away,” said Brad McMillan, chief investment officer for Commonwealth Financial. “They didn’t want to spook the market.”
The dollar also rose to a six-year high versus the yen after Fed officials increased their median estimate for the federal funds rate to 1.375 percent at the end of next year, versus June’s forecast for 1.125 percent and virtually zero now. The pound gained before Scotland votes on independence today, and Australia’s dollar fell amid concern on whether China, the nation’s biggest trade partner, is trying to fuel growth.
“Getting from zero to 1.375 percent, you’re talking about some aggressive tightening that’s going to happen,” said Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California. “Any increase in the Fed outlook for the fed funds rate should certainly be positive for the dollar.”
The U.S. currency rallied 1.2 percent to 108.37 yen and reached 108.39, the highest since Sept. 9, 2008. The dollar climbed 0.7 percent to $1.2865 per euro and touched $1.2852, also the strongest since July 2013. The shared currency appreciated 0.4 percent to 139.42 yen.
“The end-2015 target is higher than last time, arguably the focus today is on the some of the more hawkish elements of the statement,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in a phone interview. “That’s what the dollar was reacting to and strengthening on.”
In its statement following a two-day policy meeting, the central bank retained language that it plans to keep short-term rates at a record low for “a considerable time” after it ends its monthly bond purchases in November. Many investors interpret that to mean the first hike won’t come until the middle of next year.
The Dow gained 24.88 points, or 0.2 percent, to end at 17,156.85 — its 16th record high this year. The S&P 500 edged up 2.59 points, or 0.1 percent, to 2,001.57, falling short of its own closing high of 2,007.71 from Sept. 5.
The Nasdaq composite finished higher by 9.43 points, or 0.2 percent, to 4,562.19, still well below its dot-com era peak.
Shares of home builders jumped after an index of builder confidence for new homes rose to its highest level in nearly nine years. Lennar Corp. rose nearly 6 percent, the most in the S&P 500 index.
The S&P 500 has risen 8 percent in 2014, extending the bull market into a sixth year. Companies have been hiring at a solid pace and manufacturing and construction have picked up.
John Lynch, regional chief investment officer for Wells Fargo Private Bank, said the stronger economy is a big reason that stocks have risen.
“The economy is tracking at a 3 percent rate of growth, and corporate profits are at a record level,” he said, shortly before the Dow’s record close.
But the good developments have also worried the market because they could prompt the Fed to raise interest rates fast to head off inflation.
On Wednesday, at least, those concerns eased. Even before the Fed policy statement, there was news that inflation remained tame. U.S. consumer prices edged down in August, the first monthly drop since the spring of 2013, the government said.
Among stocks making big moves:
■DuPont surged $3.42 to $69.25, or 5.2 percent, the biggest gain in the Dow by far.
■FedEx rose $5.05, or 3 percent, to $159.71 after its quarterly profit beat forecasts by financial analysts. The company benefited from an increase in shipments to people shopping online.
Bloomberg News contributed.
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