NEW YORK (Reuters) - The Dow closed at its first record high of 2014 on Wednesday after the Federal Reserve gave an upbeat view of the economy's prospects as it announced another cut to its massive bond-buying program.
Investors
brushed aside data showing weak first-quarter economic growth, which
was tied to the severe winter that hampered exports and hit investment
spending.
The Fed said in a
statement it would reduce its monthly bond purchases to $45 billion from
$55 billion, as expected. That will keep it on track to end the program
as soon as October.
That the
Fed looked past a dismal reading on first-quarter growth reinforced the
view that weather was to blame for the weakness, analysts said.
"They
are seeing some economic activity pick up after the slowdown during the
winter," said Joe Bell, senior equity analyst at Schaeffer's Investment
Research in Cincinnati. That "is one positive sign."
Nine
of the 10 S&P 500 sectors ended in the black, led by the
economically-sensitive S&P materials sector (.SPLRCMA), up 0.8
percent. Exxon Mobil (XOM.N), up 0.9 percent at $102.41, led gains on
the S&P 500.
The Dow Jones industrial average (^DJI) rose 45.47 points or 0.27 percent, to 16,580.84, a record high close. It was the first record close of the year for the Dow.
The S&P 500 (^GSPC) gained 5.62 points or 0.3 percent, to 1,883.95 and the Nasdaq Composite (^IXIC) added 11.013 points or 0.27 percent, to 4,114.556.
For
the month, the Dow and S&P 500 posted slight gains, while the
Nasdaq dropped 2 percent following weeks of heavy selling in tech and
biotech "momentum" stocks. The Dow was up 0.7 percent in April; the
S&P 500 was up 0.6 percent.
Stocks were near steady for most of the session, then slowly edged to session highs following the Fed announcement.
Posts
The Fed shrugged off the shockingly weak 0.1 percent annual growth rate of the past quarter reported earlier in the day by the Commerce Department.
ReplyDeleteThe Federal Open Market Committee, led by Fed Chair Janet Yellen, concluded after a two-day meeting that the economy remains in fairly good shape, able to handle the ongoing cutback in its bond-buying stimulus programme, but still in need of a near-zero interest rate.
Economic activity "has picked up recently after having slowed sharply during the winter in part because of adverse weather conditions," the FOMC said in its policy statement.
The first-quarter slowdown from a 2.6 percent expansion in the fourth quarter of 2013 was much worse than analysts expected; the average estimate was for a 1.0 percent rate.
But this was a rear-view mirror look at the economy, and for the Fed, most of the recent signposts were pointing to "moderate" growth and a gradual improvement in the jobs market.
As widely expected, the FOMC ordered another US$10 billion cut in its bond-buying programme, which has aimed at holding down long-term interest rates to encourage hiring and investment.
That took the quantitative-easing programme to US$45 billion a month, beginning in May, down from US$85 billion in December, when the stimulus taper was launched.
But it left the benchmark federal funds rate between zero and 0.25 percent -- where it has been since the end of 2008 -- noting inflation is restrained while unemployment "remains elevated".
"The Fed has been largely correct that the weakness we saw earlier this year would be temporary. Already, we've seen rebounds in retail sales, motor vehicle sales, business capital spending, and payroll employment in March," said Paul Edelstein of IHS Global Insight.
The FOMC statement, little changed from March, did not have any significant impact on stocks, bonds or the dollar, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.