Stocks higher for 2nd day after Fed action

CHRISTINA REXRODE

Asso­ci­ated Press

NEW YORK — The stock mar­ket rose again Fri­day because of eco­nomic help from the Fed­eral Reserve. But even some of the buy­ers weren’t believers.

The Dow Jones indus­trial aver­age hit its high­est close since the pre-crisis days of Novem­ber 2007. The Rus­sell 2000 index of smaller com­pa­nies briefly traded above its all-time clos­ing high.

Mar­kets ral­lied around the world in places where traders were get­ting their first chance to react to the Fed announce­ment: Stocks climbed more than 2 per­cent in India and France and almost 2 per­cent in Japan and Germany.

Apple, the most valu­able com­pany in Amer­i­can his­tory, blew through its own all-time high and neared $700 per share as it started tak­ing orders for the iPhone 5.

The gains came on top of a 206-point climb for the Dow on Thurs­day, when the Fed laid out addi­tional plans to try to ener­gize the econ­omy, includ­ing buy­ing $40 bil­lion a month in mort­gage bonds for as long as necessary.

But a day later, even with the mar­ket ris­ing, plenty of investors were uncon­vinced. They bought stock, but they also wor­ried that the Fed can’t do much to fix the econ­omy and pre­dicted that the stock mar­ket gains would be short-lived.

Tyler Ver­non, chief invest­ment offi­cer of Bilt­more Cap­i­tal in Prince­ton, N.J., wanted to cap­i­tal­ize on the mar­ket eupho­ria while he could. That the Fed is still tak­ing such aggres­sive steps to boost the econ­omy, four years after the finan­cial cri­sis, doesn’t give him much comfort.

The Fed, Ver­non said, is “like the mor­phine being pumped into the patient. It keeps the patient walk­ing and talking.”

The Dow rose as much as 113 points Fri­day before pulling back. It ended up 53.51 points to 13,593.37. It is a 4 per­cent rally away from its all-time high of 14,164, reached Oct. 9, 2007.

The Stan­dard & Poor’s 500 rose 5.78 to 1,465.77, almost exactly 1,000 points below its all-time high. The Nas­daq com­pos­ite index, which has been trad­ing at the high­est lev­els since 2000, climbed 28.12 to 3,183.95.

The Rus­sell, which tracks 2,000 stocks with mar­ket val­ues below $5 bil­lion, closed at 854.70, a hair under its all-time high of 865.29 on April 29, 2011. Because the index con­tains small com­pa­nies, it is seen as a gauge of investors’ risk tolerance.

In the steps it laid out Thurs­day, the Fed extended its pledge of super-low short-term inter­est rates into 2015, from its pre­vi­ous tar­get of 2014. Its plan to buy mort­gage bonds is part of a strat­egy known as quan­ti­ta­tive eas­ing, designed to get peo­ple and busi­nesses to bor­row and spend, and to raise stock prices.

To be sure, investors can find other rea­sons to buy besides the Fed action. Cor­po­rate prof­its are high, and stocks are not expen­sive by his­tor­i­cal stan­dards when com­pared to earnings.

The psy­cho­log­i­cal effect of the Fed’s action is impor­tant for the econ­omy as well: If the Fed weren’t but­tress­ing the stock mar­ket and the Dow were thou­sands of points lower, con­sumers would feel less wealthy and cut spending.

But that didn’t have every­one con­vinced that the Fed’s moves will make much dif­fer­ence in the end.

Jeff Sica, pres­i­dent and chief invest­ment offi­cer of SICA Wealth Man­age­ment in Mor­ris­town, N.J., was under­whelmed by the Fed’s com­mit­ment to keep inter­est rates low. Short-term inter­est rates have been near zero for years, he noted.

“How many times can you refi­nance your house?” Sica said.

Dwight John­ston, chief econ­o­mist of the Cal­i­for­nia and Nevada Credit Union Leagues, expected the stock mar­ket gains to be short-lived — just like they were after other cen­tral bank moves, he said.

“The def­i­n­i­tion of insan­ity is doing the same thing over and over again and expect­ing dif­fer­ent results,” John­ston said. “I think this may qualify.”

Data out Fri­day also under­scored the ten­u­ous state of the econ­omy. U.S. indus­trial pro­duc­tion fell in August by the largest amount in more than three years, the Fed reported.

Also, high gas prices drove up con­sumer prices in August by the most in three years, the Labor Depart­ment said. The national aver­age for a gal­lon of gas is around $3.87, a hard­ship for many families.

Among other stocks mak­ing notable moves:

— The Children’s Place cloth­ing store rose $1.85, or 3 per­cent, to $60.67 after a Citi ana­lyst opened cov­er­age of the com­pany with a “buy” rating.

— The Cracker Bar­rel restau­rant chain slipped $2.04, or 3 per­cent, to $64.13 after a Key­Banc ana­lyst cut his rat­ing to “hold” from “buy,” cit­ing high food costs.

— Sta­ples was up 25 cents, or 2 per­cent, to $12.21 after For­tune mag­a­zine reported that private-equity firms are con­sid­er­ing buy­ing the office-supply company.

Posted by AP News on Sep 14 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.