Stocks surged Tuesday after investors concluded the Federal Reserve may be nearing the end of its lengthy rate-tightening program.
Tuesday afternoon, as scheduled, the Fed released minutes of the Nov. 1 meeting of its Open Market Committee, which determines interest-rate policy. And as soon as the minutes became public, “what was a quiet day turned positive,” noted Nomura economist David Resler.
Justified or not, “the FOMC minutes stoked the markets into thinking the Fed tightening cycle may soon be over,” Resler said.
The minutes appeared to suggest that the Fed’s view of the threat of inflation is less hawkish than some officials’ recent oratory has suggested.
Among other things, they make it clear that while more rate hikes are in the works, future rate decisions will be “increasingly sensitive to incoming economic data.” In fact, some committee members expressed reservations about what the document called the “risks of going too far with the tightening process.”
While far from straightforward, noted Economy.com’s Daniel Jester, those statements “could be read as suggesting less tightening in the pipeline than the market currently anticipates.”
A number of observers have been figuring that the central bank would make at least three more quarter-point rate increases, but optimists interpreted the language in the minutes as suggesting that only two more hikes are in the works.
The committee’s latest musings galvanized Wall Street, which is in the fifth week of a solid rally that has taken some stock indexes to their highest levels in years.
The Dow Jones industrial average responded by climbing 51.15 points, or 0.5 percent, to close at 10,871.43.
Big gainers among the blue chips included interest-rate-sensitive Caterpillar, which rose 1.8 percent, to $58.76. Other gainers included financial stocks, such as American Express, Citigroup and JPMorgan Chase.
Another Dow component, computer chip-maker Intel, climbed 3.6 percent, to $26.16, after the company announced a multibillion-dollar flash-memory venture with Micron Technology. Micron shares rose 3.3 percent, to $14.67.
The broader Standard & Poor’s 500 index gained 6.38, or 0.5 percent, to 1261.23. The technology-heavy Nasdaq composite index also rose 0.5 percent, or 11.89 points, to close at 2253.56. The S&P and Nasdaq have ridden the recent rally to their highest readings since 2001. The Dow is at its highest level since March.
The Fed minutes also sent bond prices higher, with the benchmark 10-year Treasury bond rising 8/32, to yield 4.43 percent.
Resler suggested that Wall Street’s excitement over the Open Market Committee minutes may be overdone. The minutes suggest a change is coming in the language the Fed will use in its closely scrutinized statement about the state of the U.S. economy, he said, but that is different from saying rate hikes are soon to end.
But that distinction, he said, “wasn’t going to stop the market from dreaming.”
In New York Mercantile Exchange trading Tuesday, oil prices moved significantly higher for a second straight day: Crude for January delivery rose $1.14, to $58.84.
Local stocks: Deere & Co. shares climbed 7 percent, to $67.40, after the Moline farm equipment-maker reported quarterly earnings that, while down from a year ago, landed substantially above analyst forecasts.
– Brookdale Senior Living Inc., the Chicago-based operator of assisted-living facilities, made a big splash with its market debut Tuesday.
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Brookdale’s shares, priced at $19 apiece for the company’s initial public offering, ended their first day of trading up 34 percent from the IPO price, at $25.43.
– Abbott Laboratories shares dropped 2.6 percent, to $39.32, after a Caris & Co. analyst downgraded the North Chicago-based pharmaceutical-maker to a “hold” rating from a “buy.”
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