A more upbeat
Federal Reserve reassured investors that they've been making the right bets.
Stocks extended their sharp gains Wednesday after the Fed, ending a two-day policy meeting, issued a more optimistic view of the economy and said it appears to be "leveling out." That was a change from the central bank's June assessment that the economy was shrinking at a slower pace.
Major stock market indicators surged about 2 percent, including the Dow Jones industrial average, which gained 175 points to reverse a sharp slide Tuesday. Stocks fluctuated as they often do after a Fed announcement.
The Fed's statement, which followed its decision to leave interest rates unchanged at record low levels, gave investors the more positive take on the economy that they had hoped for. Stocks have rallied sharply in the past four weeks on expectations that the economy is emerging from
recession.
The Fed also said it would slow the pace of its program to buy $300 billion worth of Treasury securities so that it will close at the end of October, rather than September as originally intended. The central bank has bought $253 billion of the securities so far. The program is designed to reduce rates on mortgages and other consumer debt.
Before the Fed announcement, stocks were rallying as investors seized on a buying opportunity, picking up bargain stocks after a big pullback Tuesday.
"The fact that we're there and we're hanging on to it is overall a good sign," said Jeffrey Kleintop, chief market strategist at
LPL Financial.
In late afternoon trading, the Dow rose 172.31, or 1.9 percent, to 9,413.76. The Standard & Poor's 500 index rose 16.69, or 1.7 percent, to 1,011.04, while the Nasdaq composite index gained 42.40, or 2.2 percent, to 2,012.13.
About four stocks rose for every one that fell on the
New York Stock Exchange, where volume came to a light 805.7 million shares, compared with 824.3 million shares traded Tuesday. Light volume can skew price moves.
The market is bouncing back a day after posting its biggest loss in five weeks. The Dow slid 1 percent and the S&P 500 index lost 1.3 percent.
Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Ill., said improved quarterly results from luxury homebuilder Toll Brothers and retailer Macy's Inc. could be signaling that consumption is increasing. That is key to a recovery in the economy because consumer spending accounts for more than two-thirds of U.S. economic activity.
Homebuilders jumped after Toll Brothers said 3 percent more homebuyers signed contracts in its fiscal third quarter, the first annual increase in four years. Demand has been strong enough that the company has been able to reduce incentives it has offered to bring in buyers.
Toll's statement that many of its markets are improving boosted confidence about the prospects for a recovery in the overall economy because along with unemployment housing is one of the biggest obstacles to a rebound.
Toll jumped $2.88, or 14.1 percent, to $23.36. Hovnanian Enterprises Inc. rose 21 cents, or 5.4 percent, to $4.13.
Macy's reported a better-than-expected second-quarter profit and cited cost-cuts in raising its full-year earnings forecast. Macy's rose 98 cents, or 6.3 percent, to $16.45.
Insurers showed some of the biggest gains. Travelers Cos. jumped $1.92, or 4.3 percent, to $46.85 after S&P raised its credit outlook for the commercial and personal property insurer.
Allstate Corp. rose $1.89, or 7.1 percent, to $28.63.
Tech stocks also helped pull the market higher. Applied Materials Inc. rose 58 cents, or 4.4 percent, to $13.80 after the maker of equipment for manufacturing semiconductors posted fiscal third-quarter results that topped analysts' expectations.
Meanwhile, bond prices were mixed after an auction of $23 billion in 10-year Treasury notes saw demand in line with recent levels but down from last month. The Treasury Department is auctioning a record $75 billion in debt this week.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, edged up to 3.71 percent from 3.70 percent ahead of the auction results and 3.67 percent late Tuesday. Bond prices jumped Tuesday as stocks fell.
Investors will track demand because a drop in buyers could force the government to increase its payout. The results rise in rates would raise borrowing costs for consumers and could slow a recovery in the economy.
