Wall Street rose on Wednesday after the Federal Reserve signalled no change in its policy stance and outlook.
The decision by the Federal Open Market Committee to leave interest rates steady yet still flag up concerns over inflation, sparked a brief bout of selling in stocks. But the market quickly recovered and closed significantly stronger than where they had been before the Fed’s announcement.
“The Fed did not scare the market by sounding hawkish on inflation,” said Jack Ablin, chief investment officer at Harris Private Bank. “Based on current expectations, a rate cut is still likely by the end of the year, and that’s positive for stocks.”
Alan Skrainka, chief market strategist at Edward Jones, said: “A rate cut is coming, but the Fed is biding its time and waiting for a clear peak in inflation.”
At late afternoon, the S&P 500 index had closed up 0.3 per cent at 1,5012.58, led by gains in telecom, industrial and financial stocks. The index is nearing its March 2000 record close of 1,527.46.
A big talking point among investors on Wednesday was Cisco as it shares slid 6.5 per cent to $26.51. The computer network operator’s fiscal third-quarter profits rose 34 per cent from the same period last year, but investors were hoping for more robust revenue guidance.
“Of the 12 times the stock has opened lower on earnings since 2002, it has gone up from the open just once,” according to the Bespoke Investment Group.
Cisco weighed on the Nasdaq Composite for much of on Wednesday, but the tech heavy benchmark pared losses after the FOMC meeting and closed up 0.2 per cent at at 2,576.34.
Texas Instruments rose 4.7 per cent to $36.83, after the maker of phone chips raised its profit margin targets on expectations for strong revenue growth.
Blue-chips benefited from the FOMC outcome and the Dow Jones Industrial Average rose 0.4 per cent to a new record close of 13,362.87. Honeywell, up 1.8 per cent at $56.81, and Caterpillar, up 1.8 per cent at $74.75, boosted the Dow.
IBM also boosted blue chips after Goldman Sachs upgraded “Big Blue” to a “buy” from “neutral” amid the company’s plans to repurchase stock and cut costs.
That reversed Goldmans’ downgrade made last week. IBM shares closed up 1.1 per cent at $104.38, after setting a 52-week high of $104.75 earlier in the morning.
A drag on the Dow was Walt Disney after it reported second quarter profit rose 27 per cent, but quarterly revenue was less than expected. Shares fell 1.2 per cent to $36.12, after the stock set a six-year high of $36.57 on Tuesday.
Beyond the FOMC meeting, analysts said the outlook for stocks remained positive.
Mr Skrainka said “the market is still at a fair level relative to earnings,” and investors were encouraged that corporate earnings had advanced near a double-digit pace in spite of a much slower economy during the first quarter.
Mr Ablin said other factors continued to support stock prices. “More than 200 companies in the S&P 500 sport a free cash flow yield in excess of the 10-year Treasury note, suggesting that the environment remains ripe for more buyouts and buybacks.”
The housing market remains one of the economy’s weak spots, highlighted on Wednesday when Toll Brothers, a builder of luxury homes, warned that it would not meet recent quarterly and annual guidance. Its shares fell 0.55 per cent to $29.05.
In other earnings news, News Corp reported a 6.2 per cent rise in profits for its fiscal third quarter, meeting analysts’ estimates. The media conglomerate controlled by Rupert Murdoch launched a $5bn bid for Dow Jones last week, but has been rebuffed by the Bancroft family which controls the publisher of the Wall Street Journal. News Corp was 1.65 per cent lower at $23.26 at mid-afternoon.
One of the biggest movers on Wednesday was drugmaker Dendreon. The stock plunged 64.3 per cent to $6.33 after the Food and Drug Administration sought more information about its prostate cancer vaccine.
Somaxon Pharmaceuticals, a speciality drugmaker, slid 11.3 per cent to $15.97, after the FDA sought details about its experimental drug to treat smoking and gambling addiction.
Isis Pharmaceuticals rose 3.3 per cent to $10.24 after the drugmaker agreed to develop and market a cholesterol drug with Bristol-Myers Squibb.
Shares in Electronic Arts fell 4.3 per cent to $50.65 after the video game maker reported a larger-than-forecast fiscal fourth-quarter loss.
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