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Stocks rise as Federal Reserve stands by stimulus
Question of the Day
Stocks rose on Wall Street on Wednesday after the Federal Reserve stood by its plan to continue with aggressive measures to boost the economy.
Concern eased about a possible financial crisis in the Mediterranean nation of Cyprus, which needs a bailout to avoid defaulting on its obligations.
The Dow Jones industrial average was up 85 points, or 0.6 percent, to 14,541 as of 2:26 p.m. EDT, nearly a half-hour after the Fed released its latest policy statement. The Dow was up 44 points just before.
In its policy statement, the Fed said the U.S. economy has strengthened after pausing late last year but still needs the Fed’s support. The central bank said it planned to keep short-term interest rates at record lows at least until unemployment falls to 6.5 percent. The rate fell to 7.7 percent last month, the lowest in four years. The Fed predicted that the unemployment rate won’t reach its target until 2015.
The Fed also said it planned to continue buying $85 billion a month in bonds indefinitely to keep long-term borrowing costs down.
Indexes closed narrowly mixed Tuesday despite rising uncertainty in Cyprus. Anyone watching “would conclude that the market decided Cyprus is overblown as an issue,” said Brian Gendreau, a strategist at Cetera Financial Group.
Mr. Gendreau said traders had been concerned about what precedent might be set by Cyprus‘ efforts to avoid a crisis. But the nation’s unusual status as an international financial haven makes it an unlikely road map for future rescue efforts.
“I think the market’s going to start looking at other things,” he said.
Highlighting the choppy nature of the recovery, FedEx reported sharply lower quarterly earnings and said it will cut capacity to Asia with so many businesses tightening their belts and using ground transport. FedEx is seen as a bellwether for the broader economy because air shipments are tied closely to the pace of business activity.
FedEx sank $6.92, or 6 percent, to $99.56.
Adobe soared after reporting strong first-quarter earnings. The company, which makes Adobe Reader and Photoshop, said it was picking up more subscriptions to online versions of its software products. The stock rose $1.79, or 4 percent, to $42.54.
Cyprus was negotiating with international lenders for support for its ailing financial system. Without a bailout deal, Cyprus‘ banks would collapse, devastating the country’s economy and potentially forcing it to exit the euro currency group. That move could roil global financial markets.
Fear about Cyprus dominated trading Monday, when the Dow lost 62 points, and Tuesday, when indexes closed mixed. Attention returned to Europe after several months’ respite, during which traders focused on the strengthening U.S. economy and drove stocks to multiyear highs.
Over the previous two years, concerns about a breakup of the eurozone often dominated trading of U.S. stocks. The jitters receded after central banks provided enough extra cash to help prop up Europe’s commercial banks.
In other trading, the Standard & Poor’s 500 index rose 12 points, or 0.8 percent, to 1,560. The Nasdaq composite index rose 26, or 0.8 percent, to 3,255.
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