Stocks Look to Extend Gains After Tuesday’s Big Increase
Stocks bounded higher and bonds fell Wednesday as Wall Street extended its rally a day after a half-point rate cut from the Federal Reserve. A mild reading on consumer prices added to the market’s momentum.
Traders looked past record oil prices at other economic data that appeared to justify the Fed’s rate cut and perhaps eased some concerns about lingering inflation. While stocks surged higher Tuesday after the Fed cut rates, some investors have already begun wondering how long the central bank could sustain its efforts to provide cheaper access to cash if prices began to creep higher. The readings Wednesday suggested that amid August’s tight credit climate and extreme stock volatility, the housing market weakened while inflation stayed under control.
In midmorning trading, the Dow Jones industrials rose 89.58, or 0.65 percent, to 13,828.97. The move comes a day after central bank policymakers slashed the target federal funds rate to 4.55 percent from 5.25 percent because of signs that credit market problems could hurt the overall economy. The Dow on Tuesday climbed nearly 336 points — its biggest one-day point gain in nearly five years.
Broader stock indicators also rose. The Standard & Poor’s 500 index rose 13.11, or 0.86 percent, 1,532.89, and was only about 20 points shy of its record close set exactly two months ago. The Nasdaq composite index rose 19.25, or 0.73 percent, to 2,670.91.
As occurred Tuesday, the Russell 2000 index of smaller companies was the biggest advancer again Wednesday. The index rose 10.73, or 1.33 percent, to 817.36. Smallcap stocks had taken a hit in Wall Street’s recent retrenchment as investors often regard bigger companies as better able to whether an economic downturn because of substantial overseas operations and an ability to perhaps skate by on thinner profit margins.
Bonds fell as traders transferred more money from fixed income to stocks. The yield on the benchmark 10-year Treasury note rising to 4.55 percent from 4.47 percent late Tuesday.
Economic data supported a case for pushing stocks higher. The Labor Department’s August consumer price index slipped 0.1 percent, as expected, while the core CPI, which excludes often volatile food and energy prices, rose an unsurprising 0.2 percent.
Meanwhile, the Commerce Department said new home construction fell for the third month in a row in August. New homes and apartments dipped last month by 2.6 percent to a seasonally adjusted annual rate of 1.331 million units, the slowest pace in 12 years.
In August, commodity prices fell along with stocks as Wall Street drew their cash out of riskier assets and moved into safer government securities. However, crude oil prices are back at record highs, moving above $82 per barrel. Light, sweet crude recently changed hands up 64 cents at $82.15 per barrel on the New York Mercantile Exchange. Oil closed over $81 per barrel for the first time Tuesday.
And in a trend that’s likely to exacerbate the effects of high commodities prices on U.S. consumers, the dollar slumped to a new low against the euro Wednesday. The dollar was mixed against other major currencies, while gold prices rose, extending the strong gains it made Tuesday.
Enthusiasm from Tuesday’s rate cut extended in particular to industries related to financing and housing. Mortgage lender Countrywide Financial Corp. () rose $1.51, or 7.7 percent, to $21.39 after its chief executive, Angelo Mozilo, late Tuesday gave a positive forecast for his company.
Homebuilders D.R. Horton Inc. () rose 96 cents, or 6.3 percent, to $16.26, while Pulte Homes Inc. (PHM) advanced 91 cents, or 5.3 percent, to $18.01.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 341.9 million shares.
European and Asian stocks surged following the Fed’s rate cut.
Britain’s FTSE 100 rose 2.93 percent, Germany’s DAX index rose 2.19 percent, and France’s CAC-40 rose 2.98 percent. Japan’s Nikkei index closed up 3.67 percent and Hong Kong’s Hang Seng Index rose 3.98 percent.
