Federal Reserve stimulus triggers stock increasesNov. 5, 2010
By David Randall
NEW YORK -- Stocks rose sharply Thursday, one day after the Federal Reserve announced a $600 billion plan to stimulate the economy.
The Dow Jones industrial average rose 199.51, or 1.7 percent, to 11,414.82 in afternoon trading, a day after closing at its highest level since September 2008.
The dollar fell against other currencies as traders anticipated lower U.S. interest rates because of the Fed's massive bond-buying program announced Wednesday. Commodities prices including crude oil rose.
Retailers reported solid sales in October, sending shares of major retailing companies sharply higher. Gap Inc. rose 6.4 percent while Macy's Inc. jumped 7.4 percent.
"Those retail numbers are telling us that the holiday season is going to get off to a good start," said Stephen Jones, the chairman of Jones Villalta Funds.
The Standard and Poor's 500 index rose 18.53, or 1.5 percent, to 1,216.49, coming within range of its highest closing level this year. The technology-heavy Nasdaq composite index rose 31.37, or 1.2 percent, to 2,571.64
On Wednesday, the Federal Reserve announced it plans to buy $600 billion in bonds in an effort to spur spending and ultimately lower the unemployment rate. The central bank was unusually detailed in its announcement, saying it planned to spend $75 billion a month on bonds until at least the middle of next year. That's on top of the roughly $35 billion a month its already buying.
"Much of today's gains comes as a result of the government pumping money into the market," said Joe Kinahan, the chief derivatives strategist at TD Ameritrade. The Standard and Poor's index breaking past the psychologically important 1,200 mark may have also brought on another round of buying, he said.
The Fed's announcement is helping to boost share prices overseas as well. The Stoxx 50 index, which tracks blue chip companies in Europe, rose 1.9 percent.
In corporate news, shares of BHP Billiton, the world's largest mining company, are up 5.7 percent after the Canadian government rejected BHP's $38.6 billion bid to buy Potash Corp. of Saskatchewan. After the market closes, Kraft Foods Inc., Starbucks Corp. and CBS Corp. will announce earnings.
Shares on the Shanghai Composite index, the most-followed measure of China's stock market, were up 1.8 percent.
The Fed's plan will increase the supply of dollars held by banks and most likely push the value of the currency down. The dollar is at its lowest level since December 2009 against a broad basket of currencies, and was down 1 percent against that index Thursday. Energy prices jumped, sending oil up $1.73 to $86.43.
Finance ministers in emerging economies like China and Brazil have criticized the Fed's stimulus plan, arguing that low interest rates in the U.S. could fuel asset bubbles in their countries.
Treasury prices have been climbing since the Fed's announcement Wednesday afternoon. In late trading Thursday, the yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.47 percent from 2.57 percent the day before.