By Donna Kardos
U.S. stocks traded higher Wednesday ahead of an afternoon
decision from the Federal Reserve, which is expected to keep its
benchmark interest rate at a record low.
Stocks were also taking their cues off the dollar, which has
been weakening against the euro since the opening bell.At last
check, the Dow Jones Industrial Average (DJI) was up 117 points, or
1.2%, to 9889. The Standard & Poor's 500 index (SPX) climbed
1.1%. The technology-heavy Nasdaq Composite Index (RIXF) rose
0.8%.
Merck (MRK) led the Dow gainers, surging 5.1% after it predicted
annual earnings growth in the high-single digits on a percentage
basis until 2013.
Shares of Walt Disney (DIS) was up 2.8% after the company got
the go-ahead from China's central government to pursue plans to
build a theme park in Shanghai.
Kraft Foods (KFT) was the only component in the red, down 3.2%
after reporting weaker-than-expected third-quarter sales and
lowering its outlook for sales growth this year. Also helping blue
chips has been the dollar's precipitous slide.
"Going global remains a priority for pension funds and all the
rest of our clients as they look to de-risk," said Michael Petroff,
a portfolio manager with Heartland Advisors. "It's forced us to
broaden the net in terms of the universe we look at and when we
look at domestic stocks, you need to look at how much of their
performance is affected by the dollar."
Crude oil and gold futures were both rising to new highs, helped
by another decline in the dollar.
Gold for December delivery, the most actively traded contract,
hit an intraday high of $1,096.2 an ounce in electronic trading on
Globex, a record for the contract. It surpassed Tuesday's peak of
$1,088.50 an ounce.
Crude for December delivery gained $1.03, or 1.3%, to $80.63 a
barrel on the New York Mercantile Exchange. The contract earlier
touched an intraday high at $81.10 a barrel..
Treasurys fell, with the 2-year note dropping 2/32 to yield
0.94%, and the 10-year note sliding 8/32 to yield 3.499. Despite
crude's recent momentum, some market veterans are skeptical that
the gains can continue.
"I still kind of feel that we're in the latter stages of this
rally," which has come in spite of continued weakness in demand,
said Tom Bentz, vice president at BNP Paribas Commodity Futures.
"Even though we may try to poke a little higher, I'm not sure we
can sustain these numbers."
Wednesday's early gains in the stock market contrast with the
usual caution seen ahead of the Federal Reserve's interest-rate
decisions.
But stocks have already been in a slump lately, and Friday's
jobs report has become the bigger focus, since the Fed's upcoming
statement is expected to include no change in rates and perhaps
just a hint as to when they could change.
The Institute for Supply Management reported its
nonmanufacturing index moved to 50.6 in October, from 50.9 in
September.
The index, which comprises mainly the service sector activities
that make up the strong majority of total American economic output,
was expected to hit 52.0 in October. But investors were encouraged
that the measure is still over 50, a level that indicates growth
and describes the breadth of the expansion.
In addition, its new orders and prices indexes both showed
growth from September.
Investors also greeted some brighter news on the jobs front.
Payroll giant Automatic Data Processing and consultancy
Macroeconomic Advisors reported a 203,000 drop in private-sector
jobs last month, on par with the drop expected by economists and
smaller than September's decline.
Meanwhile, outplacement firm Challenger, Gray & Christmas
said the number of layoffs announced by U.S. companies in October
fell to the lowest reading since March 2008.
"It fits with the general scheme of recent reports showing the
economy is slowly healing," said Bruce Bittles, chief investment
strategist at Robert W. Baird. "Nobody expects the economy to boom
but as long as it continues to put one foot in front of the other,
it's a positive signal for stocks."
As for the Fed's statement due at 2:15 p.m. Eastern time,
investors will be paying particular attention to the central bank's
description of the interest-rate outlook.
In its September policy statement, the central bank's Federal
Open Market Committee said that rates would likely remain low "for
an extended period," and any deviation from that language in
Wednesday's release could be interpreted as a sign higher rates are
on the way.Still, economist Bob Eisenbeis, a former senior vice
president of the Atlanta Fed, said he doesn't think the central
bank will change that part of its statement for now. "They're just
not going to risk choking off a recovery at this juncture," since
investors would quickly take more defensive positions in bonds and
stocks at the first hint of Fed tightening, Eisenbeis said.
Among stocks in focus Wednesday, Con-Way fell 10% after the
freight-transportation reported third-quarter profit and revenue
below analysts' estimates. R.R. Donnelley & Sons (RRD) climbed
4.4%, as the Chicago printing-services company's profit excluding
items beat analysts' expectations.