Inflation comments push stocks higher
NEW YORK » Stocks resumed advancing yesterday after New York's Federal Reserve president said in a speech that core inflation is "quite moderate." All three major indexes reached multiyear highs for the second time this week.
Since fighting inflation is the U.S. Federal Reserve's top concern, investors interpreted the remarks by New York Fed President Timothy Geithner as another sign that the Fed might soon halt its year-plus streak of short-term interest rate hikes.
"Anything that makes investors feel comfortable with the inflation level and the way short-term interest rates are going is going to help the market," said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons.
Earlier in the session, stocks were pressured by a profit warning from DuPont Co. and BP PLC's announcement that its fourth-quarter oil production slipped. DuPont is the second of the 30 Dow industrials to disappoint Wall Street after Alcoa Inc. kicked off fourth-quarter earnings season Tuesday with lower-than-expected profits.
The Dow Jones industrial average rose 31.86, or 0.29 percent, to 11,043.44. It was the index's best close since June 2001.
Broader stock indicators were higher. The Standard & Poor's 500 index rose 4.49, or 0.35 percent, to 1,294.18, its best finish since May 2001. The Nasdaq composite index rose 11.04, or 0.48 percent, to 2,331.36, its highest close since February 2001.
Bonds fell after a weak auction of five-year Treasury bills. The yield on the 10-year Treasury rose to 4.45 percent from 4.43 percent Wednesday. The U.S. dollar fell against other major currencies. Gold prices were higher.
Wall Street saw strong advances in the first five trading days of the year, but after the Dow Jones industrial average crossed 11,000 Monday for the first time in more than four years, stocks paused, closing nearly flat Tuesday.
Stocks remained in their torpor yesterday until Geithner's speech, in which he said overall inflation pressures have risen, while "inflation excluding food and energy, however, has been quite moderate, in part due to very modest growth in unit labor costs."
The market reacted because the speech contained "no overtly hawkish sign and some positive words on current inflation and productivity trends," said Lynn Reaser, chief economist of the investment strategies group at Bank of America.
Said Freeman, "A comment like this suggests that perhaps future increases won't be too aggressive."