US Market soars on Federal Reserve’s neutral decision

A flat market goes wild as stocks shoot up on unchanged interest rates and Federal Reserve’s softer wording

U.S. stocks rallied on Wednesday, lifting the Dow Jones Industrial Average by over 160 points, after the Federal Reserve left interest rates unchanged at 5.25% for the sixth straight time as market had expected. Financial stocks were the biggest winners from the Fed’s decision. The Fed no longer said that data are suggesting firmer economic growth, instead describing those indicators as mixed. It also dropped a previous reference that additional firming of monetary policy may be needed. Wall Street just loved the words that Fed used today.

29 out of 30 Dow stocks closed higher for the day. Only exception was Alcoa. But before Fed meeting details came out, 17 of the 30 stocks were trading higher. For the day (21 March, Wednesday) the Dow Jones Industrial Average closed higher by a massive 159 points at 12447.52, Nasdaq higher by 47.71 points at 2455.92 and S&P 500 higher by 24.1 points at 1435.04. JP Morgan, Caterpillar, Exxon Mobil and Citigroup were the major Dow winners. 144 of the 147 S&P industry groups posted gains.

From a sectoral standpoint, banks and broker-dealers were the maximum winners. With today’s gain, the S&P 500 and Nasdaq soaring 1.7 % and 2.0%, respectively, they climbed back into positive territory for the year. Dow remains marginally down by 0.1% for the year.

Some softening in the Fed's long-standing tightening bias was perhaps was market was just looking for. Treasuries rallied soon after 2.15 pm after Fed announcement set in. The economy looks mixed, the Fed said today, though it may expand "at a reasonable pace over coming quarters" even as the housing slowdown continues. In its 31 Jan statement, the Fed had noted "somewhat firmer economic growth."

Regarding inflation, Fed’s comment was - Inflation remains an issue, but it's not an overwhelming issue. Rather than talking about "additional" firming, the Fed said that future adjustments will depend on the evolution of the outlook for inflation and the economy. Losing the word "additional" was the key change.

Morgan Stanley up 7% on superb earnings report

Stocks opened modestly higher in the morning with Dow up by 4 points, Nasdaq up by 6 points and S&P 500 up by 1.9 points. Oracle shares surged after posting a better-than-expected 35% jump in Q1 profits and saying it "exceeded guidance on every metric with strong revenue growth across all product lines." Adobe Systems was also considerably up after reporting a 37% rise in Q3 earnings.

But within half an hour market went in a split mode with Dow turning negative and only 5 sectors trading higher, Energy leading the way.

Morgan Stanley handily topped expectations with record Q1 results, giving the brokerage group another boost of optimism. The stock closed up 7%. But, FedEx which is regarded as an economic proxy, posted its first profit decline in three years and lowered its Q4 guidance. FedEx shares dropped 1.5%.

The indices kicked off the afternoon session exactly where they traded throughout most of the morning, roughly flat. Market waited to see if the Fed changes any of the wording to its latest policy directive.

Market rallies on softer sweeter words from Fed

During the lunch hours, Treasury Secretary Henry Paulson saying he believes the U.S. economy is still healthy gave stocks a modest boost. Then as expected, at 2.15 pm Fed chairman Ben Bernanke announced that the Federal Reserve left the fed funds rate unchanged at 5.25% for a sixth straight time. The indices extended their reach to the upside, especially the S&P 500's most heavily weighted sector - Financials. Citigroup and JP Morgan were both up by almost 3%.

Thereafter there was no looking back for Wall Street. Stocks just had a wild run and Dow oscillated within a 217 point range for the day. This was the biggest one-day move for the Dow since last July. Going into close, market just cheered every word the Fed had uttered.

Crude-oil futures for light sweet crude for May delivery closed at $59.61/barrel (higher by $ 0.36/barrel or 0.6%) on the New York Mercantile Exchange. Prices increased today after weekly inventory report showed that U.S. gasoline supplies fell for a sixth straight week as refiners increased operating rates and was more than market expectations.

In the last couple of hours of trading, stock market activity picked up steam, with 1.6 billion shares exchanging hands on the New York Stock Exchange and 2.2 billion shares trading on the Nasdaq. Advancing issues topped decliners by 27 to 5 on the NYSE, while decliners topped advancers by 22 to 7 on the Nasdaq.