Stocks Edge Up After Fed Move

NEW YORK (TheStreet) -- Stocks finished with small gains Friday, as investors digested the Federal Reserve's surprise discount rate hike amid tepid inflation data.

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The Dow Jones Industrial Average, which traded as much as 40 points lower earlier, added 9 points, or 0.1%, to 10,402 by the closing bell. The S&P 500 went ahead by 2 points, or 0.2%, at 1109, while the Nasdaq gained 2 points, or 0.1%, at 2244.

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Each of the major averages tracked higher for the week, led by the S&P 500's 3.1% advance. The Dow gained 3%, while the Nasdaq improved 2.8% since last Friday's close.

Peter Cardillo, chief market economist at Avalon Partners, said the discount rate hike was a positive sign.

"The Fed move sent a message that while they don't intend to raise the short-term rate, they are saying the economy is healing, that no crutches are needed anymore, and the financial system is overcoming its hurdles," Cardillo said. "The market realizes that what the Fed did last night was a positive."

But Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, believes questions behind the underlying motive and timing of the move may continue to linger.

"People are now wondering if this is the start of monetary tightening even though the Fed decision last night indicated 'that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period,' " Roberts wrote in a note. "If it is not, the market is left wondering what the true message behind the rate move is."

"The markets will probably be on edge until the Fed chairman's speech next week in which he will be able to clarify the meaning and implications behind the rise in the discount rate," Roberts continued. "It is quite surprising that Dr. Bernanke did not use the speech to telegraph his intentions and then raise the discount rate afterward. Markets will remain on edge until then."

The consumer price index's release before the bell took an edge off concerns of imminent tightening. CPI, the price of goods and services purchased by consumers and a closely watched inflation gauge, edged just higher at 0.2% in January. The Labor Department also said its core rate, which strips out food and energy costs, actually showed a decline of 0.1%. Economists expected the index to rise 0.3%, while core CPI was projected to show a 0.1% uptick, according to consensus estimates.

Broad gains from utility and bank names highlighted the session, as the Philadelphia Utility Index and KBW Bank Index rose 1.4% and 1.3%, respectively.

Pfizer(PFE), DuPont(DD) and Boeing(BA) led the other blue-chip stocks higher. The Dow saw volume of 242 million compared to an average of 200 million.

Shares of Citigroup(C), Bank of America(BAC) and Sprint Nextel(S) were the most actively traded on the New York Stock Exchange, which had a listed volume 3.9 billion.

Late Thursday, Dell(DELL) topped analysts' estimates, but earnings and sales were lower than last year's. Shares slipped 6.7% by the closing bell.