Belfast Telegraph

Tuesday 21 October 2014

US stock market gets spring boost

Trader Steven Kaplan works on the floor of the New York Stock Exchange, which saw stocks rise on the first day of spring (AP)

The US stock market bounced back yesterday.

Encouraging signs on the first day of spring that the economy is emerging from its winter slumber helped boost stocks a day after the market dipped on concerns that the Federal Reserve would raise interest rates sooner than investors had anticipated.

The stock market has become more volatile this year as Fed policy makers have started reducing their economic stimulus, and investors have fretted whether the economy is strong enough to maintain its recovery without the central bank's support.

"The economy is likely to have a good bounce in the spring time," said Peter Cardillo, chief market economist at Rockwell Global Capital.

"The market is reacting to the good economic news."

The Standard & Poor's 500 index rose 11.24 points, or 0.6%, to 1,872.01. The Dow Jones industrial average gained 108.88 points, or 0.7%, to 16,331.05. The Nasdaq composite climbed 11.68 points, or 0.3%, to 4,319.29.

The S&P 500 game within a fraction of a point of wiping out all of its losses from a day earlier, when it dropped 11.48 points.

Stocks started the day lower, extending their losses from Wednesday, as investors mulled comments the day before from Fed chairwoman Janet Yellen, who set the stage for a possible interest rate hike by the middle of next year.

The Fed on Wednesday also dropped its previous position of saying it would consider raising interest rates once the unemployment rate declined to 6.5%. Unemployment is currently 6.7%.

Higher interest rates could slow the economy by raising the cost of borrowing money. That could hold companies back from borrowing to expand their businesses or discourage consumers from taking out loans such as mortgages.

The market turned higher in mid-morning trading following news that a measure of the US economy's health rose in February by the largest amount in three months. That suggests growth will accelerate following a severe winter.

The Conference Board's index of leading indicators increased 0.5% following a slight 0.1% rise in January and a 0.1% decline in December.

The Federal Reserve Bank of Philadelphia said separately that manufacturing rebounded in that region in March as new orders increased.

Microsoft was among the big gainers yesterday. The software company's stock climbed 1.06 dollars, or 2.7%, to 40.33 dollars after analysts at Morgan Stanley said a rumoured plan to make a version of its Office software available for iPad devices could generate 1.2 billion dollars in annual revenue.

3-D printing companies were among the losers after ExOne reported a fourth quarter loss late on Wednesday and said its revenue fell.

ExOne slid 4.35 dollars, or 10%, to 39.40 dollars. Other 3D-printer companies, including Stratasys and 3D Systems, also fell.

The stock market is in the sixth year of a bull market and has risen 172% since March, 2009. That rise has been underwritten by the Fed's stimulus, which has strengthened the economy by keeping interest rates low.

As the Fed cuts back on its stimulus, investors are splitting into roughly two camps, said Omar Aguilar, Chief Investment Officer at Charles Schwab.

"You have those that believe that the only reason the market has gone up for the last five years is because of the stimulus programme...that is clearly coming to an end," he said.

"Other investors think that the economy is in good shape."

Bond prices were little changed a day after the Fed announced it would make further reductions to its bond-buying programme. The yield on the 10-year government was unchanged from Wednesday at 2.77%.

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