Wall Street rallied strongly on Tuesday as solid company earnings and a clear indication from the Federal Reserve that its rate-raising cycle might be near its end helped overcome worries over rising oil prices.
The market jumped after the FOMC issued minutes of its latest meeting in which it said the end to rate rises was “likely to be near”.
“The market was caught off guard by the dovish statement,” said Peter Cardillo, chief market analyst at SW Bach. “However, if energy prices continue to go up, the Fed will probably continue with its cycle of monetary tightening.”
Scott Wren, senior equity strategist, AG Edwards and Sons, was less concerned about spiralling crude prices.
Although oil futures settled at a record high of $71.35, Mr Wren said the fact that the core producer price index only increased by 0.1 per cent in March was evidence that higher energy prices had not led to a more generalised inflation.
“It’s wage-pushed inflation the Feds will be looking at,” he said. “Three-dollar gas might slow down consumer spending but that’s going be offset by strong economic growth.”
The Dow Jones industrial average closed up 1.8 per cent, or 194.99 points, at 11,268.77, its biggest point gain in more than two years.
The broader S&P 500 rose 1.7 per cent to 1,307.65, while the Nasdaq composite index jumped 2 per cent to 2,356.14.
The Amex oil index gained 1.9 per cent, with bellwether ExxonMobil up 2.3 per cent at $63.49 and oil service provider Schlumberger up 2.9 per cent at $64.41.
Rate-sensitive stocks such as financials and homebuilders advanced, while Texas Instruments led chipmakers higher with its 3.8 per cent advance to $33.93.
The Philadelphia semiconductor index jumped 3.1 per cent after shedding 1.5 per cent in the previous session.
Financials were boosted by Merrill Lynch, which rose 1.2 per cent to $79.38 after the group delivered a record $8bn in quarterly revenue.
Wells Fargo also saw first quarter profits rise steeply. The stock gained 0.9 per cent to $65.06.
IntercontinentalExchange surged 14.3 per cent to $66.16 after analysts at Bear Stearns initiated coverage on the stock with a favorable rating, citing potential for growth and the exchange’s appeal as a takeover target.
Other movers included the internet travel services company Travelzoo. Its first-quarter profits topped analysts’ estimates. The shares soared 43 per cent to $28.59.
Yahoo and IBM rose ahead of its first quarter earnings. Yahoo rose 1.1 per cent to $31.30 while IBM gained 2.1 per cent to $83.31.
Johnson & Johnson, which topped analysts’ estimates with its first-quarter results, rose 0.8 per cent to $58.13 while Boston Scientific, which reported a small decline in first-quarter profit, rose 1.2 per cent to $21.74.