Stocks Jumped after Fed Interest Rate Pledge

Published on Wednesday, 25 January 2012 22:02 Written by Christopher Lynn

New York, January 25^th (TradersHuddle.com) – Stocks jumped after the Fed said that it expects to keep interest rates low until at least late 2014, signaling the possibility of additional policy action if economic conditions deteriorate. Apple stellar earnings report also boosted the NASDAQ, which outperformed in the session.

The Dow Jones Industrial Average gained 81.21 points, or 0.64%. The S&P 500 index climbed 11.41 points, or 0.87%, while the NASDAQ jumped 31.67 points, or 1.14%.

The market started mixed, with modest weakness in the S&P 500 and Dow Jones, while the NASDAQ received a boost from the record-breaking results from Apple (NASDAQ: AAPL). Overseas markets were also mixed amid ongoing jitters in Europe over a possible messy Greek default. 

In Europe, equity markets closed lower, with banks underperforming, as concern grew over the ability of the European Central Bank to continue to buy peripheral debt, if it has to take write downs in Greek bond holdings. Chatter surrounding the possibility of disorderly default in Greece and possible contagion to Portugal or Spain weighed on sentiment.

The moderate selling pressure eased, with stocks able to climb after the Federal Open Market Committee issued its latest Policy Statement. The afternoon advance eventually gained enough momentum to take the stock market to a new multi-month high.

The FOMC announced that it would keep the federal funds rate at 0.00% to 0.25%. It also stated that economic conditions are likely to warrant such exceptionally low rates through at least late 2014. The advance was temporarily interrupted when the Fed disclosed that it now expects GDP for 2012 to grow in a range of 2.2% to 2.7% this year, down from the range of 2.5% to 2.9% that it had stated previously. But Fed Chairman Bernanke acknowledged, though, that if inflation remains below target and employment remains slow there is a case for further policy action.

All of the S&P 500 select sectors closed higher, with utilities, materials, and energy posting the biggest gains, while financials and consumer discretionary closed with the smallest advances. In the utilities sector, NRG Energy (NYSE: NRG) rallied 5% to $17.33, posting the biggest gains in the space, as the stock traded with above average trading volume.

Both energy and materials received some of the biggest bids after the Fed statement pressured the Dollar, lifting the commodities space and spurring a rally in Gold. Newmont Mining (NYSE: NEM), the largest gold producer, rallied 4.82% to $60.25, as the bullion rallied above $1700 an ounce.

Also in the space, DuPont (NYSE: DD) jumped 2.39% to $50.59, posting the second biggest percentage gain in the Dow Jones Industrial Average. Yesterday, the company beat earnings by $0.02 per share on revenues that were slightly below expectations.

In the energy sector, equities were mixed amid earnings news. But stocks with exposure to natural gas received another jolt after ConocoPhillips (NYSE: COP) following earnings beat said that it also plans to cut natural gas output amid slumping prices for that commodity. Earlier this week, Chesapeake Energy (NYSE: CHK), the second-largest U.S. natural gas producer, said it would pare its natural gas output and focus more on increasing oil production. ConocoPhillips closed the session with a 0.9% loss, while Chesapeake rallied close to 4% to $23.38.

Also in the earnings front, Hess (NYSE: HES) tumbled 5% after the company posted a fourth-quarter loss of $0.39 per share, versus a loss of $0.18 in the year ago period. Decreased production and the sale of an interest in a shuttered refinery plagued Hess’ fourth-quarter numbers.

In technology, it was all about Apple (NASDAQ: AAPL). Shares rallied 6.24% to $446.66 after posting a new all-time high of $454.45 following record shattering quarterly results. Apple more than doubled the profit from a year ago, while increasing revenues by 73%. The company shipped record numbers of iPhones, iPads, and Macs. Numerous analysts raised their target prices to reflect new estimates and shipments. Apple also reported $97 billion in its cash balance, while becoming the most valuable company in the world. The mind-boggling cash hoard prompted speculation of a possible dividend or even an acquisition.

Also in the sector, CA, Inc. (NYSE: CA), the provider of standardized computer software products, surged 9.7% t $25.03 after its profit beat expectations by $0.11 per share on revenues that were above consensus. The company also provided upside guidance for fiscal 2012. CA raised its quarterly dividend by 400% to $0.25, while is announced that its board of directors have authorized a $1.5 billion share buyback program.

On the weak end, Corning (NYSE: GLW) weighed on the sector and the broad market as shares plunged to the bottom of the S&P 500. The company Reported EPS and revenues in line but noted expectation of double digit price decline from last to this quarter. Shares closed with a decline of more than 10%.

Elsewhere, JC Penny (NYSE: JCP), the department store operator, fell 0.92% to $34.28 after the company unveiled its new strategy to transform its stores, as it will introduce a new pricing model and clearance deal that will prompt repeat customer visits. CEO Ron Johnson unveiled strategy on an event in New York, saying that the retailer will adopt a simple pricing model, which will permanently slash prices by 40% and reducing the number of sales it holds. Mr. Johnson also discussed the retooling of the stores, by creating distinct retail spaces within its stores that will feature different brands. JC Penny also will be spending dearly on a marketing campaign to promote its new strategy.