Updated from 4:08 p.m. EST
Stocks had their best day in months Tuesday as traders gushed over minutes from the last
meeting suggesting interest rates might be peaking in the current cycle.
After being down more than 30 points earlier, the
Dow Jones Industrial Average
closed up 129.91 points, or 1.21%, to 10,847.41. The
surged 20.51 points, or 1.64%, to 1268.80. The
added 38.42 points, or 1.74%, to 2243.74. For the Dow, it was the best single-day point gain since Oct. 28. For the S&P and Nasdaq, it was the best performance since April.
"This was a nice way to start off the new year," said Art Hogan, chief market analyst with Jefferies & Co. "A lot of this was driven by the fact that the Fed confirmed that
the end is in sight. We've held on to the belief that when the Fed ends stock prices will go up. We'll still have rate hikes, but the market is celebrating that we'll see an ending sooner than later."
Stocks caught a bid after the minutes of the Dec. 13 Fed meeting added fresh evidence that the end is near for official interest rate hikes. Though the meeting ended with another quarter-point rise in fed funds, "members thought that the policy outlook was becoming considerably less certain and that policy decisions going forward would depend to an increased extent on the implications of incoming economic data for future growth and inflation." As things stand, most Fed members don't currently believe they are committed to a "large" number of future hikes, the minutes showed.
"Although the cumulative rise in energy and other costs had the potential to add to inflation pressures, core inflation had been relatively low in recent months, and longer-term inflation expectations remained contained," the minutes stated. "In these circumstances, the
Fed believed that policy accommodation could be removed at a pace that was likely to be measured but noted that it would respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
The 10-year Treasury bond was up 4/32 in price to yield 4.37% and is now 3 basis points above the yield on the two-year note after the release of the Fed's minutes. The dollar remained weaker against the yen and euro.
"The Fed's minutes do not change the near-term outlook for policy despite the strong market reaction," argued Ian Shepherdson, chief economist with High Frequency Economics. "Clearly there is some debate as to how much further tightening will be necessary, as the minutes say the number of hikes will likely 'not be large,' but 'large' is undefined. This does not read like a Fed where everyone is looking for a reason to stop."
About 1.91 billion shares traded on the
New York Stock Exchange
, with advancers beating decliners by a 3-to-1 margin. Trading volume on the Nasdaq was 2.02 billion shares. Advancers outpaced decliners 3 to 2.
Opening gains were erased in early trading after the Commerce Department said construction spending for November rose 0.2%, weaker than expectations of a 0.5% gain. Meanwhile, the Institute for Supply Management's manufacturing index fell unexpectedly in December to a reading of 54.2 from 58.1 in November.
Crude prices soared as storms battered large areas of the U.S. and traders returned from the holiday break. In Nymex floor trading, crude for February delivery jumped $2.10 to close at $63.14 a barrel. Natural gas fell 60 cents to $10.62 per million British thermal units.
Stocks fell in the last session of 2005, with the Dow Jones Industrial Average and Nasdaq Composite both losing about 0.6% while the S&P 500 lost 0.5%. For the year, the Dow finished 66 points below where it started, while the Nasdaq gained 30 points and the S&P 500 added 36 points.
"You might be inclined to explain away last week's weakness by noting the low volume and people on vacation, but the historical record of year-end rallies was built on similar conditions," said Ken Tower, chief market strategist with CyberTrader. "More likely, the absence of sideline cash will become a common problem throughout the year."
Meanwhile, Citigroup equity strategist Tobias Levkovich offered a more positive outlook for the coming year. Levkovich is projecting double-digit gains for 2006, with year-end targets of 1,400 for the S&P 500 and 11,900 for the Dow.
Tuesday's strong finish reflected optimism about the new year despite a significant piece of bearish corporate news. On Sunday,
, the world's biggest discounter, said same-store sales in the U.S. rose only 2.2% in December. The company had previously forecast December comps of plus 2% to 4%. The retailer slid 58 cents, or 1.2%, to $46.22.
was off 0.5%.
( SFA) is a step closer to completion after the expiration of the Justice Department's antitrust waiting period. The companies announced the $5.3 billion transaction in November. Cisco added 33 cents, or 1.9%, to $17.45.
Shares of newly independent
saw action Tuesday after Prudential started them at overweight with a $30 price target. The stock was spun out of
and was trading at $25.40 on a when-issued basis Friday. Shares finished up 78 cents, or 3.1%, to $26.18.
Meanwhile, Piper Jaffray raised its stock-price target for
to $600 from $445, reflecting a 50 price-to-earnings multiple of a new pro forma 2007 estimate of $11.91 a share. Google rose $20.37, or 4.9%, to $435.23.
Banc of America cut its price target for shares of
to $13 from $16. GM was the Dow's biggest loser in 2005, falling by 50%. Shares of GM were lower by 52 cents, or 2.7%, to close at $18.90.
J.P. Morgan raised its rating for
Johnson & Johnson
to overweight from neutral, citing expectations for positive 2006 guidance from the company. J&J, which is expected to give an update on Jan. 24, finished up $1.51, or 2.5%, to $61.61.
The Amex Airline index was down 1.2% as
faced downgrades from Merrill Lynch and Raymond James. JetBlue dropped 95 cents, or 6.2%, to $14.43.
Other sectors performed better Tuesday. The Amex Gold Bugs index closed up 7.9% as gold futures surged $13.60 to $532.50 an ounce. The Amex Oil index added 4.8%, and the Philadelphia Semiconductor Sector index was up 2.8%.
posted first-quarter income of $345.6 million, or 34 cents a share, up from $328.6 million, or 32 cents a share, a year ago. Earnings were cut by 2 cents a share by the expensing stock options. The Thomson First Call consensus was for EPS of 33 cents. Walgreen gained $1.11, or 2.5%, to $45.37.
Overseas markets were higher, with London's FTSE 100 adding 1.1% to 5681 and Germany's Xetra DAX up 0.2% to 5461. In Asia, Hong Kong's Hang Seng added 0.5% overnight to 14,945, while Japanese markets were closed for a holiday.