Visions of Fed cut lure investors
NEW YORK - Wall Street advanced Monday as investors undeterred by record oil prices speculated the Federal Reserve will cut interest rates later this week to boost the slow economy and lure more buyers into the troubled credit markets.
The Dow Jones industrial average rose 63.56 to 13,870.26.
Microsoft, one of the 30 Dow stocks, fell 46 cents to $34.57. Boeing, also a Dow stock, gained 97 cents to $96.99.
Broader stock indicators also gained. The Standard & Poor’s 500 index rose 5.70 to 1,540.98, while the Nasdaq composite index rose 13.25 at 2,817.44.
The Fed begins its two-day meeting today, and the market widely expects a rate reduction Wednesday.
Central bankers lowered rates by a half-point in September for the first time in four years after the credit markets seized up and posed the threat of recession. The economy has a hard time growing if companies can’t borrow and lend money.
But with energy prices soaring to new highs, the risk of inflation - which tends to accelerate when rates are low - may give policymakers some pause.
Crude-oil futures soared Monday above $93 a barrel for the first time on the New York Mercantile Exchange after a storm led Mexico’s state oil company to suspend about a fifth of its oil production.
The Fed remains concerned about inflation but is likely to lower the target federal funds rate by a quarter-point due to overriding credit worries, said Scott Wren, equity strategist for A.G. Edwards & Sons.
“It’s kind of a psychological sort of move,” Wren said. “A 25 basis-point cut isn’t going to ease the credit crunch. But it’ll give the Fed a little more time to figure out what’s going on with the economy.”
Light, sweet crude for December rose $1.67 to settle at a record $93.53 a barrel on the New York Mercantile Exchange after rising as high as $93.80.
Though record-high crude prices and rising metal prices hurt consumers, they helped boost the stocks of companies who sell commodities. ExxonMobil and Alcoa were among the biggest gainers in the Dow.
Alcoa rose $1.08, or 2.7 percent, to $40.43, and ExxonMobil rose $1.40 to $93.61.
Earnings so far have generally shown weakness in the financial and housing sectors but strength in others.
“It’s a stock-pickers’ kind of market. If you’re in the right sectors, you’re going to do well, but if you’re in the broader market, you’ve got exposure to those weak sectors,” said Rob Lutts, president and chief investment officer of Cabot Money Management.