To Taper or Not? Stocks Rise Ahead of Fed Meeting

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NEW YORK (AP) - Investors are in a game of wait-and-see with the Federal Reserve. On Monday, they guessed that the Fed will continue trying to prop up the economy, and sent stocks higher.

The major stock indexes all rose about 1 percent in early trading and stayed there for most of the day, before dipping slightly in the afternoon. The Standard & Poor's 500 index rose 12.31 points, or 0.8 percent, to 1,639.04. It had been up as much as 20 points.

The market's gains were broad. Telecommunications was the only one of the 10 industry sectors in the S&P 500 to post a loss. Netflix did better than any other stock in the S&P 500 after announcing that it will run original TV series from Dreamworks Animation.

Overall, though, there were few big company announcements or economic reports. Trading was light, the day more a holding pattern than a referendum. Investors will have to keep guessing about the Fed's future actions until Wednesday, when Chairman Ben Bernanke holds a news conference at the end of a two-day policy meeting.

Investors sent stocks up Monday because they think Fed policymakers will determine that the economy isn't recovering fast enough. That might seem like a contradiction, but a still-weak economy would influence the Fed to continue its programs designed to stimulate the economy: keeping interest rates low to encourage borrowing, and buying bonds to push investors into stocks. Not everyone thinks that's a logical pattern.

Doug Lockwood, branch president of Hefty Wealth Partners in Auburn, Ind., said it's not rational for the stock market to regard bad news as good, and to be yanked back and forth more by the actions of a central bank than the underlying fundamentals of the economy.

"I think the market's a little hooked on a drug here," Lockwood said. "You take drugs, you feel better, but it's short-lived. Printing of money should never be considered a great thing for the economy."

The market has been in flux since May 22, when Bernanke said the Fed would consider pulling back on its bond-buying program if measures of the economy, especially hiring, improve. The comment, made not in prepared testimony but in response to a question from the Joint Economic Committee in Congress, was not expected. In the 17 trading days since then, the Dow Jones industrial average has swung by triple digits 11 times. Overall, the Dow is down about 1 percent since before Bernanke's testimony.

Jim McDonald, chief investment strategist at Northern Trust in Chicago, said Bernanke will seek to "walk back" on some of his previous comments, and reassure investors that the Fed won't pull back on stimulus until it's sure the economy is ready. The surprise factor, more than the substance of Bernanke's comments, might have been what unnerved investors, McDonald said.

"The market hates surprises," McDonald said. "And he surprised us."

The fact that Bernanke is now expected to regard the economy as weak enough to still need stimulus stems from two main data points issued since his testimony, analysts said: a jobs report and low inflation.

Earlier this month, the government reported that the U.S. added 175,000 jobs in May - a solid addition, but not enough to cut into the unemployment rate. And on Friday, the government said that a key measure of inflation - the producer price index, which measures wholesale prices - rose just 0.1 percent after stripping out the volatile costs of food and gas. That's important because the Fed knows that its stimulus measures can stoke inflation; if inflation is low, that gives the central bank more flexibility to keep pumping money into the economy.

Two measures of economic data released Monday were positive, though both are considered less-important gauges of the U.S. economy. A report on New York state manufacturing showed a pickup, and a survey of U.S. homebuilders said they were more optimistic about home sales than they have been in seven years.

Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Portland, Oregon, described the economy as moving "grudgingly ahead." But sustained growth can't come, he said, until the government gives businesses a better idea of what to expect in the way of financial, health care, labor and energy rules.

"Businesses seem to be suffering from a severe case of 'what's-next-itis' paralysis," Dickson said.

Japan, trying to spur its own economy with a central bank bond-buying program, saw its benchmark Nikkei 225 index jump nearly 3 percent, extending Friday's gain of about 2 percent. Japan's market has also been ricocheted by investors trying to guess the future of its central bank's stimulus actions. Monday's gains were driven by a drop in the value of the yen, which makes Japan's exports cheaper and more competitive. The Nikkei is still down 15 percent since the day before Bernanke's testimony.

In other U.S. stock trading, the Dow rose 109.67 points, or 0.7 percent, to 15,179.85. The Nasdaq composite rose 28.58, or 0.8 percent, to 3,452.13.

The price of crude oil rose throughout the day, but ended 8 cents lower at $97.77 a barrel in New York. Gold edged down $4.50 to $1,383.10 an ounce.

Among U.S. stocks making big moves:

-Pinnacle Entertainment, a casino and racetrack operator, jumped more than 4 percent after it moved closer to regulatory approval for its purchase of Ameristar Casinos. Pinnacle rose 79 cents to $19.64. Ameristar rose 19 cents, less than 1 percent, to $26.39.

-Johnson & Johnson rose 72 cents, less than 1 percent, to $85.63, after saying it would buy Aragon Pharmaceuticals, a private company focused on drugs for hormonally-driven cancers.

-Boeing was up after Qatar Airways and the aircraft leasing arm of General Electric put in an orders for aircraft. Boeing rose $1.20, or 1.2 percent, to $103.03.

-Google rose $11.21, or 1.3 percent, to $886.25, after resolving a shareholder lawsuit that had blocked a stock split. That means it will avoid a scheduled Delaware Chancery Court trial that could have cast it in an unflattering light.


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7 Comments

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demcoverup

rich_paddlyrich
Bobby Jindal: GOP needs to \'stop being the stupid party\'
By Justin Sink - 01/25/13 08:20 AM ET

===================================
Hey piddle paddle who gives a flying fack what Justin Stank writes. You need to stop celebrating the stooooooooooooopid party that goes on in your head everyday and go out and find a job.

June 18 2013 at 9:31 AM Report abuse +3 rate up rate down Reply
mgh406

The stock market is like one giant adict and Bernanke is the main supplier.

June 18 2013 at 8:36 AM Report abuse rate up rate down Reply
setanta54s_back

oooooooooooooh yeah.......fraud street GUESSED ?
sure.

June 17 2013 at 7:31 PM Report abuse +3 rate up rate down Reply
acaceca

LOW INFLATION? What planet are these people living on? Do any of them shop at grocery stores anymore? Factor in food and energy (which our devious government has opted not to take into consideration) and the inflation rate is staggering......WTF? FOOD and ENERGY are what we common people LIVE ON. We can do without anything else but we NEED food and energy - the 2 things that our government considers not important enough to include in the official inflation rate - I wish all of the overpaid, overprotected, corrupt politicians would get a real job in the real world and experience what we all experience on a daily basis - unbelievable real inflation and watching the ----head politicians dine extravagently on our money........

June 17 2013 at 7:29 PM Report abuse +3 rate up rate down Reply
glesh52262

Why would the FED keep causing a inflated economy and take a chance of a complete collapse just like the housing crisis that still is not resolved. Is there another purpose to distroy our economy with all the debt?

June 17 2013 at 7:17 PM Report abuse +1 rate up rate down Reply
1 reply to glesh52262's comment
setanta54s_back

LOL--theeee name of their game is total destruction and collapse of both the dollar and the USA.

June 17 2013 at 7:32 PM Report abuse +4 rate up rate down Reply
sniphair

Dump Bernake the sooner the better.

June 17 2013 at 7:06 PM Report abuse +1 rate up rate down Reply