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Stocks rally after Summers exits Fed race

First Published Sep 16 2013 08:52AM      Last Updated Sep 16 2013 02:56 pm

Wall Street was happy to see Larry Summers go.

Stocks rose on Monday after Summers, who had been the leading candidate to replace Federal Reserve chairman Ben Bernanke, withdrew his name from consideration.

Summers, a former Treasury secretary, was viewed as being more likely to rein in the government’s massive stimulus program, which has kept interest rates low and boosted corporate profits.

Stocks were also helped by news that U.S. factory output rose 0.7 percent in August, the most in eight months.

The Dow Jones industrial average rose 118.72 points, or 0.8 percent, to close at 15,494.78. The Standard & Poor’s 500 index rose 9.61 points, or 0.6 percent, to 1,697.60. The Nasdaq composite fell 4.34 points, a fraction of a percent, to 3,717.85, pulled down by a loss in Apple.



Nine of 10 sectors in the S&P 500 rose, led by industrial stocks. Only technology stocks declined.

At its highest point in late morning trading, the S&P 500 was within five points of its previous record close of 1,709.67, set on Aug. 2.

That worried Brad McMillan, chief investment officer for Commonwealth Financial.

McMillan said there are risks that investors don’t seem to be accounting for in the prices they’re paying. The Syria situation might not be resolved as easily as some are assuming. Europe’s debt crisis isn’t over. Investors seem to believe corporate profits will keep growing as fast as they have been, even though cheap debt refinancing has driven much of that growth. And there’s another debate upcoming in Washington about the U.S. debt ceiling. "The last time we had a real problem with it, it did result in a significant market correction," McMillan said.

Linda Duessel, market strategist at Federated Investors in Pittsburgh, said it’s just as likely that some of those issues will turn out in ways that don’t hurt stocks. And even if one of those issues causes stocks to decline, "that could be the correction that any us of who have cash on the sidelines are waiting for," she said.

The Fed has been buying $85 billion per month in bonds, which has had the effect of keeping interest rates low and reduced borrowing expenses for companies.

The Fed has been saying for months that it will slow that stimulus once there’s a better outlook for jobs. The question has been how soon, and how much. The consensus with Summers was, sooner, and more. That’s why stocks rose once investors found out he won’t be the next Fed chief.

The president is expected to nominate Ben Bernanke’s successor as early as this month. The new front-runner is Janet Yellen, the Fed’s vice chair.

The Fed is expected to take its first step toward reducing that stimulus in a two-day policy meeting that ends Wednesday. Many economists think it will trim $10 billion from its monthly bond purchases.

The yield on the 10-year Treasury note declined more than a tenth of a percent earlier in the day, but regained most of that, and finished at 2.87 percent, down from 2.88 percent late Friday. The dollar fell against the yen and the euro.

Among companies making big moves:

— Homebuilders rose as investors were encouraged by a decline in long-term interest rates. The biggest gainer in percentage terms was PulteGroup, up 62 cents, or 3.8 percent, to $17.14.

— Boise rose $2.60, or 26 percent, to $12.56 after news that Packaging Corp. of America is buying it for $1.27 billion. Packaging Corp. rose $5.88, or almost 11 percent, to $60.43.

 

 

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