The stock market had already enjoyed a summer rally, in part because investors were betting on more Fed action. The Dow has climbed more than 1,100 points since the start of June.
Still, stocks spiked Thursday in industries across the economy. Materials companies, which tend to do well when the economy picks up, enjoyed the biggest gain 2.6 percent as a group. Bank stocks also surged.
This is the third round of bond-buying by the Fed since the financial crisis struck in the fall of 2008. The goal is to lower long-term interest rates, get people to borrow and spend more and push investors into stocks.
If history is any guide, stocks could rally a bit more. In the three months following March 2009, when the Fed said it would expand its first round of buying, the S&P 500 rose 18 percent. In the three months after the central bank hinted at a second round of buying in August 2010, the S&P rose 14 percent.Some economists and investors have warned that the bond-buying will have a limited impact because interest rates are already near record lows. Critics of the stock rally say investors should focus on why the Fed is acting in the first place: The U.S. economy is weak. Economic growth in China is also slowing, and much of Europe is in recession and struggling with high debt. Earlier this month, Mario Draghi, the head of the European Central Bank, said the central bank would buy the debt of countries that use the euro and are desperate to keep their borrowing costs down. "I'm not buying anything," Gary Flam of Bel Air Investment Advisors said as Fed Chairman Ben Bernanke spoke at a press conference. Flam added, referring to Draghi and Bernanke: "These two guys are propping up market in the hope it will trickle down to the economy, but after several years of this we haven't seen a sustainable impact. The underlying problems of debt and deficits remain."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV