The Joplin Globe, Joplin, MO

Business

June 14, 2012

Stocks rise on Wall Street on hopes for Fed action

NEW YORK — The stock market headed higher Thursday after a tame inflation reading and another weak jobs report raised expectations that the Federal Reserve is closer to offering more support for the U.S. economy.

The market had a temporary surge late in the day after Reuters reported that major central banks were preparing for coordinated action to prop up financial markets in the event that Greek elections this weekend cause tumultuous trading.

The Dow jumped about 100 points after the report came out, putting it up 202 points on the day, but the excitement quickly faded. Within 20 minutes the index was trading slightly above where it was before the report came out, up 131 points, or 1 percent, at 12,627 with half an hour of trading left.

Applications for unemployment benefits rose last week, according to the latest government report. The four-week average increased for a third straight week, another sign that the jobs market remains weak.

The government’s main measure of U.S. consumer prices fell in May by 0.3 percent, the biggest drop since December 2008. Analysts said the slowdown in price increases could make it more likely that the Fed will announce new steps to boost the economy when it meets next week. Low inflation gives the Fed more leeway to inject money into the financial system, keep interest rates low and encourage borrowing.

The Dow Jones industrial average was up 91 points at 12,587 at 2:30 p.m. Eastern. Walt Disney rose 2 percent, the most of the 30 stocks in the Dow.

“The markets are higher, I think, because there are enough investors who believe that this morning’s data on prices and jobless claims increase the case for more Fed easing as soon as next week’s meeting,” said Clark Yingst, chief market analyst at the securities and banking firm Joseph Gunnar.

Yingst said the market could easily switch directions in the coming days. “Traders are just following the trend one way on one day, but are perfectly happy following it the other way the next.”  

The Standard & Poor’s 500 increased seven points to 1,322. The Nasdaq composite gained three points to 2,822.

The gains were broad. Nine of the 10 industry groups in the S&P 500 made gains and more than two stocks rose for every one that fell on the New York Stock Exchange.

Just the whiff of another round of help from the Fed has been enough to shoot stocks higher in recent weeks, but the gains often disappear as quickly as they arrive. Last Wednesday, the Dow posted its best day this year, surging 286 points. Comments from a Fed official that hinted at more stimulus helped launch the rally.

The rally fizzled the next day, however, after Fed Chairman Ben Bernanke told a closely watched Congressional hearing that no new steps were being contemplated at the moment.   

The question of will or won’t the Fed act next week is top of mind for investors. The Fed’s latest round of bond purchases winds down at the end of this month, and market players wonder whether a third is on the way, or if the current program might be extended. By making trillions of dollars’ worth of bond purchases, the Fed helps keep interest rates ultra-low and encourages investors to put money into other assets, like stocks.

“Ultimately, all that matters for investors right now is whether these developments mean the Federal Reserve is more or less likely to ease policy in order to support what they may see as an insufficiently strong economic recovery,” said Dan Greenhaus, chief global strategist at the brokerage BTIG, in a note to clients.    

In Europe, borrowing rates for Spain touched a record high Thursday after the rating agency Moody’s cut its credit rating to one notch above junk status. Spain’s benchmark 10-year bond hit 6.96 percent before pulling back.

Among stocks making big moves:

— Nokia plunged 14 percent, or 40 cents, to $2.39. The cellphone maker cut its earnings forecast and announced plans to cut $2 billion in costs by the end of next year. Nokia said it will close its main manufacturing plant in Finland, shutter research facilities in Germany and Canada and lay off 10,000 employees.

— Kroger rose 5 percent after the grocery store chain raised its profit forecast for the year. The Cincinnati-based company, which operates Ralphs, Food 4 Less and other grocery stores, also announced it will spend $1 billion to buy back its stock. Kroger’s stock gained $1.08 to $22.36.

— Winnebago Industries reported that its quarterly profit more than tripled, mainly because of higher prices for its vehicles. The results topped analysts’ expectations. Winnebago’s stock rose 3 percent, or 27 cents, to $9.26.

 

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