By Jennifer Yousfi
The U.S. markets surged yesterday (Thursday) the day after the U.S. Federal Reserve came though with the broadly expected 25-basis point rate cut that brought the fed funds rate down to 2.0%.
The blue-chip Dow Jones Industrial Average Index gained 189.87 points (1.48%), to trade at 13,010.00. The tech-laden Nasdaq Composite Index shot up 67.91 points (2.81%), to reach 2,480.71. And the broader Standard & Poor's 500 Index increased 23.75 points (1.71%), to close at 1,409.34.
"The economic data wasn't that bad, the inflation data is certainly not well over the Fed's target, so you could consider that a relatively good sign," Robert Pavlik, chief investment officer at Oaktree Asset Management, told MarketWatch. "There's a bit of volatility on continued reaction to the Fed's statement; the market is trying to come to an agreement that the Fed is on a pause, and was hoping for more of an indication that a pause would be in effect."
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But some industry experts feel the Fed's language was clear and to expect a pause on further rate cuts.
Bob Doll, global chief investment officer of global equities at money manager BlackRock Inc. (BLK), told Reuters that the Fed is most likely done with its series of interest-rate cuts that began in September, as financial market conditions are improving and economic growth isn't deteriorating as some speculated.
"They are going to watch everything, but I think the fact that the two-year note and Fed funds are not far from one another tells us that they might be done," Doll added.
A host of lackluster economic indicators were announced yesterday, but the market seemed to take them in stride.
Initial jobless claims increased by 35,000 to a four-week high of 380,000 for the week ended April 26. Many sectors are seeing layoffs and hiring freezes as business investment declines and the worst housing slump in a generation continues unabated.
In a separate report, the U.S. Commerce Department announced that consumer spending increased 0.4% in March, mostly due to higher consumer prices. Without the effect of inflation on the price of goods and services, consumer spending increased just 0.1%.
The Institute for Supply Management reported manufacturing activity contracted again in April, while the Commerce Department said construction spending dropped 1.1% in March.
Good news came from across the pond, as the Bank of England released its semi-annual report on financial stability, which signaled the worst of the credit crisis could be over.
In the accompanying statement, John Gieve, a Bank of England deputy governor, said the pricing of risk in credit markets appears "to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals," MarketWatch reported.
"So, while there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months," Gieve said.
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