Stocks Close at Two-Year High
NEW YORK (
) -- Stocks finished mildly higher Wednesday after the
Federal Reserve
announced the purchase of $600 billion worth of long-term Treasury securities through the second quarter of 2011, modestly higher than the $500 billion the market was expecting.
The final confirmation from the Fed put an end to two months of speculation about its likely move. With the results of the midterm elections also in line with market expectations, the stock markets have been free of major surprises so far in this eventful week.
The
Dow Jones Industrial Average
closed higher by 26 points, or 0.2%, to 11,215, a two-year high for the bluechip index. The
S&P 500
was up by 4 points, or 0.3%, to 1,197, and the
Nasdaq
gained 7 points, or 0.2%, at 2,540.
The 10-year Treasury note was last up by 5/32, weakening the yield to 2.576 after briefly trading lower. The U.S. dollar reversed earlier gains to trade lower against basket of currencies, with the dollar index down 0.3%.
Shares across capital goods and utilities sectors were trading weak while most other sectors were trading modestly higher. On the Dow,
Boeing
(BA) - Get Report
,
Microsoft
(MSFT) - Get Report
and
DuPont
(DD) - Get Report
and were the biggest laggards while
Cisco
(CSCO) - Get Report
,
Hewlett-Packard
(HPQ) - Get Report
and
JPMorgan Chase
(JPM) - Get Report
showed the best performance.
The Federal Open Market Committee said in
its highly anticipated statement that it would expand its holdings of securities to "promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate." The statement reiterated the central bank's earlier economic outlook that the pace of recovery in output and employment continues to be slow. It also said measures of inflation trended lower in recent quarters, supporting the Fed's opinion that inflation is too low.
The statement also contained language to suggest that the central bank would evaluate its program and have the flexibility to modify it depending upon the economy. "The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."
Federal Reserve Chairman Ben Bernanke |
Mitchell Eichen of asset management firm MDE Group believes that most of the market benefit from QE is already in the price. "The wealth effect we were supposed to get from QE2 ... we have already got it. We see a difficult road ahead for markets with growth in the single digits," he said.
Eichen believes that QE2 won't help boost the economy and is at best insurance against a downward recessionary spiral with a costly premium -- inflation. He does not think inflation is a possibility in the near term. "The important thing to realize about monetary policy is that the traditional transmission mechanism has been the housing market. The housing market is dead," he said. He went on to add that without a transmission mechanism, inflation was unlikely in the near term.
Stocks began the morning session with mild gains on the expected
Republican takeover of the House.
"The election last night came in pretty much as expected," said David Chalupnik, head of equities at First American Funds. "The bottom line is it means a divided government, which should reduce regulatory risk going forward. It reduces uncertainty in the business community, so that's viewed as a positive for the market, although it's having no impact today."
In a speech Wednesday afternoon, President Obama said he spoke with Rep. John Boehner (D., Ohio) Tuesday night, who will replace California's Nancy Pelosi as Speaker of the House.
Obama said he did "a lot of listening" and heard confirmation of what he'd already heard from people across America -- that Americans are frustrated with the pace of economic recovery, want their paychecks to go further, want jobs to be created faster, want to know their tax dollars are spent wisely and that their voices are not being "drowned out" by partisanship.
Wednesday also was a busy day for economic data, but investors remained largely preoccupied with the Fed meeting. In the first piece of employment data ahead of Friday's government report, Automatic Data Processing said the
private sector added 43,000 jobs in October, exceeding expectations for gains of 20,000, according to Briefing.com. That compares with job losses of 2000 in September, which was milder than originally reported declines of 39,000.
Earlier, the
Mortgage Bankers Association said the volume of mortgage-loan applications fell 5% on a seasonally adjusted basis in the week ended Oct. 29 and refinancing applications declined 6.4% week over week. Meanwhile, new-home purchase loan applications rose 1.4%.
The Institute for Supply Management's October services index rose to 54.3, surpassing expectations for a reading of 53.4, and exceeding September's level of 53.2.
Meanwhile, factory orders rose 2.1% in September, topping economists' forecasts for growth of 1.7%, according to Briefing.com. Orders were unchanged in August.
The Energy Information Administration said crude oil inventories gained 2 million barrels in the week ended Oct. 29, meeting the expectations of analysts polled by Platts. Gasoline stockpiles unexpectedly shed 2.7 million barrels and distillates decreased by 3.6 million barrels. Analysts had expected a build of 1.1 million barrels in gasoline supplies, and distillates were projected to shed 900,000 barrels.
Late Tuesday, the American Petroleum Institute said crude inventories lost 4.14 million barrels.
October truck and auto sales were released during the afternoon trading session.
GM
said sales of its core brands rose 13% in October while overall sales ticked 3.5% higher.
General Motors
said late Wednesday the company's shares will be priced in the $26 to $29 range and will split its shares three for one in advance of the IPO. GM also preannounced a
of around $2 billion.
Ford
(F) - Get Report
shares were up 5.2% to $15.18 on the back of GM's imminent IPO. The company also reported that car sales grew 19% in the last year.
Whole Foods
(WFMI)
was rising 7% in extended trading after it reported earnings after the bell. The retailer beat the Wall Street view and raised guidance.
Hartford Financial
(HIG) - Get Report
surged 9.2% to $25.57 after it announced better-than-expected results and raised its guidance.
EOG Resources
(EOG) - Get Report
plunged 9.3% to $88.27 after it swung to a quarterly loss citing weak natural gas prices and cut its production forecast for 2010, 2011 and 2012.
Pulte Group
(PHM) - Get Report
saw shares drop 7.6% to $7.45 as the homebuilder posted a wider third-quarter loss of $2.63 a share driven by goodwill impairment and insurance adjustments. The shortfall compares to a year-ago loss of $1.15 a share, and sales fell 3% to $1 billion from $1.1 billion previously. Consensus estimates, which exclude nonrecurring items, called for a loss of 5 cents a share, according to Briefing.com.
MGM Resorts
(MGM) - Get Report
narrowed its third-quarter loss to 72 cents a share and said sales increased slightly to $1.56 billion. MGM said writedowns of its CityCenter and Borgata properties negatively impacted results by 51 cents. The results compare to consensus estimates for a loss of 23 cents a share on sales of $1.55 billion. Shares soared 10% to $12.31 on the news.
Time Warner
(TWX)
posted better-than-expected adjusted earnings of 62 cents a share and said third-quarter sales grew 2% to $6.38 billion. Wall Street had been expecting a profit of 53 cents a share on sales of $6.41 million. The media company also hiked its full-year growth outlook to in the high 20% area, from its previous guidance for profit growth of at least 20%. The stock, however, lost 1.1% to $31.79.
Aetna
(AET)
said third-quarter net earnings rose 53% on lower benefits and expenses, topping estimates for a profit of 67 cents a share with earnings of 84 cents a share.
Wellpoint
(WLP)
also exceeded expectations, with earnings of $1.74 a share on sales of $14.33 billion. Analysts had expected earnings of $1.57 a share on sales of $14.21 billion. Shares of Aetna increased 2.9% to $30.84 while Wellpoint's stock ticked higher by 0.5% to $55.59.
Lloyds Banking
(LYG) - Get Report
named Antonio Horta-Osorio, head of
Banco Santander's
(STD)
U.K. business, its new CEO. He replaces Eric Daniels, who is stepping down. Shares of Lloyds added 3.5% to $4.45 while Banco Santander's stock lost 1.7% to $12.37.
News Corp.
(NWSA) - Get Report
announced plans to takeover the remaining 61% stake in
BSkyB
, a U.K.-based TV operator. News Corp. will announce results after the bell on Wednesday. The stock was up 2.1% at $14.84. After the bell, the company reported a rise in profit helped by cable channel strength.
Speaking at a breakfast hosted by
The Wall Street Journal
on Wednesday,
American Express CEO and Chairman Ken Chenault hinted at a "stimulus plan for small businesses" that the company expects to roll out in the next few days. American Express shares lost 0.8% to $42.07.
Shares of
(GOOG) - Get Report
advanced 0.7% to $620.18 despite a decision by the U.K.'s information commissioner that Google's Street View vehicles, which drive around the world to gather data for Google Maps and Google Earth, violate the country's data protection law by unwittingly collecting personal data from unsecured wireless networks.
In commodity markets, the December crude oil contract added 79 cents to settle at $84.69 a barrel. Meanwhile, the December gold contract lost $19.30 to settle at $1,337.10 an ounce.
Overseas, Hong Kong's Hang Seng jumped 2% higher, and Japan's Nikkei climbed 0.06%. The FTSE in London increased 0.1%, and the DAX in Frankfurt added 0.3%.
--Written by Melinda Peer and Shanthi Venkataraman in New York
.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
