Closing Market Report
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Fed minutes boost stocks, bonds higher
By Joe Bel Bruno
Associated Press
NEW YORK » Wall Street advanced for a second straight session yesterday after minutes from the latest Federal Reserve meeting failed to produce any bombshells about the economy, and oil prices dropped below $70 per barrel.
Stocks recovered from earlier losses triggered by disappointment over the Conference Board's consumer confidence index, which slipped further than expected and raised the possibility that the economy may be moderating faster than hoped.
The market initially waffled after the release of the minutes from the Fed's Aug. 8 meeting, when the central bank refrained from raising interest rates. Wall Street had become cautiously optimistic that the Fed's two-year campaign of 17 straight rate hikes is over, especially given recent economic reports that pointed in that direction.
The minutes said the pause in rate hikes would give the central bank time to determine if the increases have contained inflation without slowing the economy's growth too far, but it did not rule out further credit tightening.
"The Fed initially knocked the market down, but once that was away and people realized it wasn't as bad as it could have been, buyers came into the market and took it up," said Todd Leone, managing director of equity trading at Cowen & Co. "The Fed is being vigilant on inflation, and we're seeing evidence the economy is slowing down. They have to portray a tough stance."
The minutes showed that the central bank believed another rate increase "could well be needed" to slow inflation and orchestrate an economic soft landing. But, the market largely discounted the comment since a series of reports, including slowing home sales and the latest consumer confidence numbers, indicated the economy is indeed slowing.
The Standard & Poor's 500 index advanced 2.50, or 0.19 percent, to a three-month high of 1,304.28.
Other stock indicators were higher. The Dow Jones industrial average was up 17.93, or 0.16 percent, to 11,369.94, and the Nasdaq composite index rose 11.60, or 0.54 percent, to 2,172.30.
The Fed minutes led to a rally in the bond market, where the yield on the 10-year Treasury note fell to a five-month low of 4.78 percent. The dollar was mixed against other major currencies, while gold prices fell.
Bryan Piskorowski, a market analyst at Wachovia Securities, said he found little that was surprising in the Fed's stance. Markets typically bounce after minutes are released while stock and bond investors scrutinize the comments for clues about Fed interest rate policy.