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Fed decision to place
focus back on earnings
NEW YORK >> Wall Street posted a healthy advance yesterday as consumer confidence surged to a two-year high and quelled investor concerns about the economy a day before the Federal Reserve's decision on interest rates.
The Conference Board's consumer confidence index rose strongly in June, far outstripping the market's expectations. Strong consumer confidence is seen as a key factor in the economic recovery, as it means people are more likely to spend.
"The nice thing about this number is that you get all the good news, but it doesn't necessarily correlate to inflation," said Michael Palazzi, managing director of equity trading at SG Cowen Securities. "Yes, inflation will follow and rates will go up, but we have a strong base for the economy, rates are still low, and now we have a lot of confidence."
The Dow Jones industrial average gained 56.34, or 0.5 percent, to 10,413.43.
Broader stock indicators were moderately higher. The Standard & Poor's 500 index rose 2.85, or 0.2 percent, to 1,136.20, and the Nasdaq composite index was up 15.11, or 0.8 percent, at 2,034.93.
The Conference Board's consumer confidence index was pegged at 101.9 for June, up from 93.1 in May and far surpassing the 95 reading Wall Street expected. That eased some of the nervousness investors were feeling as they awaited the Federal Reserve's decision on interest rates. The Fed is expected to announce today at least a 0.25 percentage point increase in the benchmark lending rate, which currently stands at a 45-year low of 1 percent.
The price of the Treasury's 10-year note closed up 1332 point, while its yield fell to 4.68 percent from 4.74 percent Monday. Two-year Treasury notes rose 116 point and yielded 2.82 percent, down from 2.87 percent Monday.
"Even though the market's up a little bit, and the confidence number is good, I think people are still waiting for the Fed," said Brian Bruce, director of global investments at PanAgora Asset Management Inc.
"Uncertainty still rules, and once the Fed moves, we can pick a direction and start focusing on earnings and the economy, which are doing really well."
Nonetheless, the report helped the market overcome disappointing news from Washington Mutual Inc. and Target Corp., which warned that quarterly results would be lower than expected. Investors feared an interest rate hike would harm financial stocks, while Target's warning, combined with a similar outlook from Wal-Mart Stores Inc., did not bode well for retailers.
Target fell $1.75 to $42.29 after Prudential lowered its estimates of same-store sales growth for the quarter. The discount retailer has also warned that sales would be below Wall Street expectations.
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