Dow soars 429 points on Fed statement

Associated Press

NEW YORK

The Fed spoke — and financial markets rallied.

The Dow Jones industrial average surged more than 429 points, its 10th-highest point gain in history and the biggest since March 2009. It was just one day after the Dow had its worst point decline since 2008.

The Federal Reserve pledged to keep its key interest rate at its record low of nearly zero through the middle of 2013. The central bank also said that it has discussed “the range of policy tools” it can use to spur the economy.

The central bank’s statement means that another round of fiscal stimulus could be on the way as the Fed works to keep those rates low, said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management, which has $228 billion in assets under management.

In June, the central bank finished its second round of bond buying, also known as quantitative easing, in hopes of boosting the economy. Bob Doll, chief equity strategist at BlackRock said the Fed’s decision to hold interest rates at a very low rate for two years is “unprecedented” and called it a kind of back-door quantitative easing.

“Markets are going to do what they would have done if the Fed went out and bought securities,” Doll said. “This will push investors ... back into equities.”

He expects stocks to continue to rally because a slowly-growing U.S. economy won’t harm corporate profits. “Corporate America has demonstrated that it can generate good growth and profits despite a weaker U.S. economy,” Doll said.

The Dow rose 429.92 points, or 4 percent, to 11,239.77. It’s a significant turnaround from Monday when the Dow plunged 634.76 points in the first trading day after Standard & Poor’s downgraded the U.S. one notch from its top AAA credit rating to AA+.

The S&P 500 rose 53.07, or 4.7 percent, to 1,172.53. The Nasdaq composite index rose 124.83, or 5.3 percent, to 2,482.52.

At first, markets reacted much differently to the Fed’s statement. Stocks fell after the Fed’s 2:15 p.m. EDT statement. Gold surged to more than $1,774 per ounce and settled at $1,740 an ounce. The yield on the 10-year Treasury note briefly touched a record low of 2.03 percent.

As stocks rallied, the yield on the 10-year Treasury note quickly headed higher. It was at 2.26 percent late Tuesday. A bond’s yield drops when its price rises.

Howard Silverblatt, senior index analyst at S&P, called it the “Big Ben turnaround.”

The industries that did best Tuesday were the ones that fell the most Monday. Financial stocks in the S&P 500 rose 8.2 percent after falling 10 percent Monday. Materials companies, which rely on a stronger global economy for their profits, rose 5.9 percent.

Only seven of the 500 stocks in the index had declines. All 30 stocks in the Dow rose. Bank of America Corp., which was down more than 20 percent Monday, rose 16.7 percent, the most of any stock in the Dow. Aluminum maker Alcoa Inc. was up 8 percent.

Technology company MEMC Electronic Materials Inc. led the S&P 500 higher, gaining 19.1 percent.