Dow up 350: Stocks soar on Fed boost – USA TODAY

Stocks climbed higher and added to gains in midday trading Thursday, a day after the Federal Reserve said it can be ‘patient’ about when it will make the first rate hike and signs of oil prices stabilizing. Newslook

Stocks soared Thursday as good feelings about the Fed’s Wednesday announcement that rate hikes aren’t on the immediate horizon carry over into a second day.

The Dow Jones industrial average jumped 421 points, or 2.4%, to 17,778 and the Standard & Poor’s 500 index gained 48 points, or 2.4%, to 2061. The Nasdaq composite index rose 104 points, or 2.2%, to 448.

Percentage-wise, the S&P 500 is having its best two-day stretch in almost two years — since early January 2013.

WHY? 5 reasons the Dow is skyrocketing

“Fed-induced optimism sent the Dow to its best day of the year yesterday, and the blue-chip barometer is set to pick up right where it left off,” Karee Venema of Schaeffer’s Investment Research noted early in the day.

European stock investors also were reassured by the Fed’s comments. An easy Fed also benefits Eurozone companies as it suggests that the U.S. economy — which has been growing at a roughly 4% clip the past two quarters — will remain healthy, providing a demand boost to Eurozone firms that sell goods and services to the Americans.

Investors in Europe, especially in Germany and France, are also relieved that the Russian ruble is showing signs of stabilization.

The CAC 40 of France jumped 3.4% and Germany’s DAX added 2.8%. The FTSE of Britain gained 2%.

In Asia, Japan’s Nikkei 225 index gained 2% and Hong Kong’s Hang Seng index gained 1%. The Shanghai composite fell 0.1%

Investment Roundtable takeaway: More volatility in 2015 http://t.co/mFSqxaz4yo#marketoutlook15pic.twitter.com/2FvMDjUJBR

— USA TODAY Money (@USATODAYmoney) December 18, 2014

The good market news comes in the wake of volatility churned in recent days by a plunging Russian ruble and cratering oil prices. The ruble has stabilized, now trading for about 60 to one U.S. dollar. Oil is dropping more: A barrel of West Texas intermediate crude is down shy of 2%, at a few dimes above $56.

Remarks by Russian President Vladimir Putin in a long, three-hour news conference led the ruble to a 0.3% drop — modest compared to a huge, 23% plunge on Tuesday.

The surprising thaw in U.S.-Cuba relations announced by President Obama on Wednesday is having a two-day impact on the Herzfeld Caribbean Basin Fund, which invests in business related to the Caribbean island. The fund — ticker, CUBA — is up about about 3% after having soared 28.9% the previous session.

Wednesday and Thursday’s market action shows that after a brief bout of turbulence, a risk-on mentality has returned to financial markets largely due to the Fed.

Obama: I had blunt discussion with Raul Castro; @djusatoday reports http://t.co/kAbl1Oxp2m

— USA TODAY Money (@USATODAYmoney) December 18, 2014

Investors’ positive vibes spring from the Fed’s Wednesday afternoon statement that it could raise near-zero short-term interest rates, but in a matter of months and amid an accelerating economy. In its final policy statement of the year, the Fed said that it “can be patient in beginning to normalize the stance of monetary policy.”

Stocks took a giant leap on the resulting perception that the Fed won’t rush into rate hikes. The Dow had its best day of 2014, closing the day up 288 points, or 1.7%, to 17,356.87.

Thurday’s rally is being driven by the same things that have been driving the bull market for years: “low rates and easy money and little in the way of alternatives to stocks” for investors looking to generate acceptable returns, says Bill Hornbarger, chief investment strategist at Moneta Group.

When the Fed does raise rates – it will take things slow – or at least that is what investors are banking on, says Alan Skrainka, chief Investment officer at Cornerstone Wealth Management.

“This move is likely the result of increased confidence that the Fed will raise rates very gradually in light of recent events – mainly the plunge in oil prices and slowing global growth,” says Skrainka.

Another reason for the massive stock market rally is investors are reversing earlier bets against the market, or so-called “short covering,” says Mark Luschini, chief investment strategist at Janney Montgomery Scott.

USA TODAY

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Many investors had been shorting the market, or trying to profit when prices fall by borrowing shares with the hope of buying them back later at a lower price. But with the nearly 600-plus point rally in the Dow, that so-called shorting strategy did not work out, so those investors are buying the borrowed shares back now for fear stocks will climb even higher and cost them more losses.

Nick Sargen, senior investment advisor at Fort Washington Investment Advisors, says he’s scratching his head over all the attention to the Fed. The central bank, he says, “didn’t tell us anything we didn’t know before.”

Sargen theorizes that the stock investors might be rethinking their initial negative reaction to lower oil prices and may be refocusing on the fact that lower prices at the pump “is a huge positive” for the U.S. and world economy, except for Russia and OPEC.

“For a while the market was focused on the losers from lower oil prices rather than on the winners,” says Sargen. “It seems like the market had a few ‘bad hair’ days and suddenly discovered everything would be okay.”

Large-company U.S. stocks are also benefiting from what Hornbarger calls a “crowding in” effect. With the U.S. economy doing better than the rest of the developed world and the dollar strong and corporate America’s balance sheets “the best in the world,” many investors have “thrown in the towel” on foreign stocks in developed nations and emerging market stocks.

Charles Biderman, CEO of TrimTabs Asset Management, a firm that tracks the cash flows in and out of the stock market and mutual funds, says the main stock market driver is simply “supply and demand.”

In the first three days of this week, he says there have been “over $30 billion of new cash takeovers of public companies and stock buybacks.” In contrast, there has been “less than $2 billion of new stock offerings” brought to market.

Despite the two-day euphoria, Hornbarger is still warning clients that the suddenly hot market is still “due” for a 10% correction and that they should expect lower returns in the next few years after the big run the past five years.

Citing a stronger economy, the Fed announces a patient approach to rate hikes in 2015. Shartia Brantley reports Video provided by Reuters Newslook

Video Transcript

Automatically Generated Transcript (may not be 100% accurate)
00:01 The Fed gave investors an early Christmas get by emphasizing
00:05 up patient approach to raising rates at the economy continues to
00:09 improve. Fed chair Janet Yellen as. Progress in the changing maximum
00:14 employment and 2% inflation continues. At some point it will become
00:19 appropriate to begin reducing policy accommodation. But based on its current
00:25 outlook the committee churches that it can be patient in doing
00:30 so. Stocks rallied on the news of major market indices reversing
00:34 three days of losses. Worth columnist Jane fat. China just your
00:39 financial market straightforward race. On. Equity should lobbyists and even how
00:45 you’ll incredible benefit because the pace is not going to be
00:48 crashing those markets on purpose any times in. Emerging markets are
00:53 huge and at issue are really good news that. And any
00:56 rate rise will be dependent on incoming economic data. Oatmeal financials
01:01 John can Ollie. It really does depend on the data and
01:04 the Fed’s stress that again that that they said what they’re
01:06 going to do is dependent on the data how quickly the
01:10 labor market improves. For now investors expect a gradual increase in
01:14 interest rates starting in mid 2015. And today’s rally says the
01:19 market is just fine with back.

PHOTOS: Cuba’s treasure trove of 1950s U.S. cars http://t.co/QXI7AnwRZe Photo: AFP/Getty Images pic.twitter.com/DwWax7PCMY

— USA TODAY Money (@USATODAYmoney) December 18, 2014

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