Gentle Fed Lifts Stocks

The FOMC's thinking on inflation contains no major surprises.
Publish date:

Updated from 4:06 p.m. EDT

Stocks reversed course late Tuesday and closed solidly higher, as the


meeting minutes eased concerns about inflation and higher interest rates.


Dow Jones Industrial Average

added 59.41 points, or 0.57%, to 10,507.97, while the

S&P 500

gained 6.55 points, or 0.55%, to 1187.76. Earlier, both had traded close to their 2005 lows, hit on Jan. 24. The


closed 13.28 points, or 0.67%, higher at 2005.40, having neared its six-month low touched in late March earlier in the session.

Trading volume on the

New York Stock Exchange

was 1.96 billion shares, with advancers beating decliners by a 5-to-3 margin. Volume on the Nasdaq was 1.90 billion shares, with advancers beating decliners 8 to 7.

The 10-year Treasury note was up 16/32 in price to yield 4.36%, the lowest in a month, having rallied from a 2/32 loss before the minutes' release. The dollar was higher against the yen and euro.

Oil fell sharply by $1.85 to close at $51.86 in regular Nymex trading, a seven-week low. The May crude contract finally reversed a week of declines on Monday, rallying in the afternoon to finish up 39 cents. The contract was down as much as $1 earlier Monday.

"The market was trading low all morning off the trade deficit and on low volume," said Jay Suskind, head of institutional equity trading at Ryan Beck & Co. "The market aired a sigh of relief after there was no real sense of an aggressive Fed, and it has reversed the losses. They're trading at a better floor right now."

On the economic front, the government said February's trade deficit swelled to a record $61 billion, from $58.5 billion in January. Economists had expected the deficit to come in at $59 billion. The widening deficit was fueled by a 1.6% rise in imports of goods and services.

Tuesday afternoon, the Federal Open Market Committee released the minutes of its March 22 meeting, at which governors observed growing evidence of inflation. The minutes showed that members of the FOMC saw a higher chance that rate hikes could accelerate from the "measured pace," as economic data showed that inflation could be growing.

"Members agreed that it was appropriate to acknowledge the recent evolution in the inflation situation by indicating that though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident," the summary read. "The rise in energy prices, however, has not notably fed through to core consumer prices.

"Members noted, however, that the existing 'measured pace' language was clearly conditional on the economy evolving in a way that promised a gradual return to high levels of resource utilization and on inflation remaining low, and thus believed that the wording did not rule out either picking up the pace of firming or pausing in the process of removing policy accommodation should circumstances warrant. They also noted that the language had not precluded a notable increase in medium- and longer-term interest rates over the intermeeting period as markets extended the expected gradual increase in policy rates."

"The market seems to have liked the minutes," said Paul Mendelsohn, chief investment strategist with Windham Financial Services. "There seems to be a camp in the Fed that wants to hike at a faster pace. It appears the next meeting will be a 25-point increase, and then we'll see if the measured pace is taken out. Until it's taken out, the market is acting like it sees no change in the policy."

In corporate news,



said late Monday that first-quarter operating earnings rose 50% from a year ago to $311.6 million, or 29 cents a share, beating estimates by 4 cents. Company officials told analysts on a conference call not to expect similar outperformance in coming quarters, however, as the biotech company steps up spending on drug launches and research. Shares rose $1.12, or 2%, to $57.72.

BMC Software


gained Tuesday despite saying fourth-quarter earnings and revenue will fall short of targets. The company said late Monday that it expects to earn 8 cents to 12 cents a share before items on revenue of $338 million to $400 million, both well below Wall Street estimates. BMC will also cut about 12% of its global nonsales workforce. BMC was up 25 cents, or 1.7%, to close at $14.90.

Shares of

Abbott Labs

(ABT) - Get Report

were higher after the company said first-quarter earnings from continuing operations rose 9% to 58 cents a share, matching Wall Street estimates. Worldwide sales rose 16% from a year ago to $5.38 billion, also matching forecasts. Shares added 15 cents, or 0.3%, to finish at $47.90.

Pepsi Bottling


reported first-quarter net profit of $39 million, or 15 cents a share, a decline from $50 million, or 19 cents a share, a year ago. The company, however, beat analysts' earnings expectations of 13 cents a share. Revenue in the quarter rose to $2.15 billion from $2.07 billion a year earlier. Pepsi Bottling gained $2.69, or 9.9%, to $29.74.


(AMTD) - Get Report

reported second-quarter earnings of $71 million, or 17 cents a share, compared with $81 million, or 19 cents a share, last year. The 12% decline from a year ago was blamed on lower trading volume. Revenue was $232.5 million in the quarter compared with $246.8 million a year ago. Analysts were forecasting earnings of 16 cents a share on sales of $231.6 million in the latest quarter. Ameritrade rose 45 cents, or 4.2%, to $11.15.


(TZOO) - Get Report

reported first-quarter earnings of $1.8 million, or 10 cents a share, up from $1 million, or 5 cents a share, a year ago. Revenue in the quarter increased to $11.2 million from $6.5 million. The results include a charge of $984,000 related to cash payments made to former shareholders. Analysts, however, expected the company to post a profit of 14 cents a share on revenue of $12.5 million, according to Thomson First Call. Travelzoo tumbled $8.98, or 19.4%, to close at $37.32.

Shares of

Black & Decker


rose after the company said Tuesday that it now expects first-quarter EPS from continuing operations of $1.33 to $1.35, excluding a one-time gain, up from its previous guidance of $1.05 to $1.10. Analysts expect $1.07 a share, according to the Thomson First call average estimate. Shares jumped $7.99, or 10%, to $87.66.


(CEN) - Get Report

said it expects first-quarter earnings of 15 cents to 16 cents a share. Excluding one-time charges related to severance costs and interest rate derivatives, the information services company expects 18 cents to 19 cents a share, better than analysts' estimates of 16 cents, according to Thomson First Call. The company said it would restate its 2000 to 2004 results because of lease accounting changes. On the higher guidance, Ceridian rose $1.09, or 6.5%, to $17.85.


said a

Securities and Exchange Commission

inquiry into trading in its shares has become a formal investigation. said the investigation is now focusing on disclosure matters as well as financial reporting and internal controls questions. Shares fell 41 cents, or 11.2%, to $3.24.


(SBUX) - Get Report

said late Monday that it has purchased

Ethos Water

, a privately held bottled-water company, for an undisclosed amount. Shares of Starbucks added 44 cents, or 0.9%, to $47.95.

In brokerage action, shares of


(TIVO) - Get Report

gained 7% after Smith Barney upgraded the company to buy from hold. Shares were up 51 cents, or 9%, to $6.16.

Overseas markets finished lower, with London's FTSE 100 down 0.5% to 4946 and Germany's Xetra DAX falling 0.5% to 4372. In Asia, Japan's Nikkei fell 0.6% overnight to 11,670, while Hong Kong's Hang Seng was flat at 13,658.

The first week of the first-quarter earnings season picks up Wednesday with

Apple Computer

(AAPL) - Get Report


Advanced Micro Devices

(AMD) - Get Report





Commerce Bancorp

(CBH) - Get Report

reporting. Apple is expected to earn 24 cents a share for the quarter, more than tripling last year's number, on $3.15 billion in sales.