Closing Market Report
Star-Bulletin news services

Stocks move higher
after rate increase

NEW YORK » Wall Street enjoyed a solid advance yesterday after the Federal Reserve raised short-term interest rates for the 10th time in more than a year but changed its policy statement to say longer-term inflation expectations are well contained.

While the Fed's statement signaled more increases are likely through the end of the year, the market interpreted the statement as a hoped-for sign the central bank's streak of rate hikes may then be approaching an end.

Stocks bumped higher after the Fed's announcement although investors had expected the rate hike to 3.5 percent, a four-year high. The Fed signaled that at least one more rate increase is coming, but many investors expect three more.

Wall Street was also soothed as crude oil futures fell to $63.07 a barrel, down 87 cents, on the New York Mercantile Exchange. Oil hit a record intraday high of $64.27 Monday following the announcement the U.S. embassy in Saudi Arabia would close for two days due to threats.

Investors also cheered Labor Department data showing work force productivity rose at a slower rate than it had in the first quarter. Labor costs also grew at a slower rate than the previous nine months. Analysts are looking for the economy to grow at a moderate pace, since torrid growth might lead to inflation and even more interest rate hikes than anticipated.

The Dow Jones industrial average rose 78.74, or 0.75 percent, to 10,615.67 after three days of losses.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 8.25, or 0.67 percent, to 1,231.38, and the Nasdaq composite index rose 9.80, or 0.45 percent, to 2,174.19.

In its policy statement, the Fed repeated its previous view that "pressures on inflation have stayed elevated" but added that "core inflation has been relatively low in recent months and longer-term inflation expectations remain well-contained."

The market has spent most of the year nearly flat, which suggests investors are worried about energy costs, consumer spending, housing and the economy, in addition to interest rates, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia.

After strong second-quarter earnings and months of positive economic data, the market's consensus is that the Fed's rate hikes are justified. But, because of the other factors that could affect the economy, investors are split on whether the Fed's hikes will be enough to contain inflation without causing a recession.

Search: TickerName

by Financials.com

| | |
E-mail to Business Desk


© Honolulu Star-Bulletin -- https://archives.starbulletin.com