Stocks Advance on Prospects for More Fed Bond-Buying
NEW YORK ( TheStreet) -- Major U.S. stock markets strengthened Wednesday and bond yields tempered as a worse-than-expected report on economic growth bolstered prospects for the Federal Reserve to maintain its monetary stimulus program.
The S&P 500 jumped 1% to 1,603.26. The gauge remains poised to decline for the month having fallen 1.7% since the beginning of June. The Dow Jones Industrial Average also added 1% to 14,910.14 while the Nasdaq gained 0.9% to 3,376.22.
In an unusual twist of market action, traders on Wednesday bid up the major U.S. indices on the notion that a weaker GDP report suggests the Fed will continue its pace of mortgage-backed securities and longer-term Treasuries purchases.
"The Fed has stated they will begin to end the quantitative easing and it's going to be data dependent, so they saw a little bit weaker data," Rick Robinson, southwest regional chief investment officer of Wells Fargo Private Bank, said about the GDP revision. "The markets are anticipating that perhaps some of the recent data or these downward revisions are showing that the economy is not as strong as the Fed had thought and that it could delay the tapering.""It's kind of a joke when you think about it, because the whole reason people are willing to be long stocks is if basically the central bank is in there to bail them out," said Uri Landesman, president of Platinum Partners. "At some point the central bank is going to have to pull away ... and then it's going to go down." Further boosting sentiment for the Fed to continue its current policies came from European Central Bank President Mario Draghi who reiterated Wednesday before members of the French lower house of parliament that the ECB's crisis backstop plans remain in place and that the bank stands "ready to act again when needed." Draghi's comments follow Fed Chairman Ben Bernanke's statements a week ago that the bank would consider curbing its stimulus measures later this year pending stronger economic data. Markets around the world also breathed easier as liquidity fears in China appeared to subside after the country's central bank acted to ease interest rates. The benchmark 10-year Treasury was rising 19/32, lowering the yield to 2.542%. August gold futures plunged $45.30 to $1,229.80 an ounce. A worse-than-expected GDP report was published by the Bureau of Economic Analysis showing first-quarter gross domestic product at 1.8%, down from its prior estimate of an annualized rate of 2.4%. Economists were expecting the estimate to remain the same. The main downside surprise was in personal consumption, revised down by 0.8 percentage points to 2.6%. The GDP report "paints a picture of an economy with clearly less growth momentum at the start of the year than previously suggested," Peter Newland, a New York-based economist at Barclays, wrote in a note. "To achieve the FOMC's current growth projection for the year as a whole would take a significant acceleration in H2
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