July 2, 2013

Markets shrug off Fed concerns for a modest rally

The Associated Press

NEW YORK - Investors have stopped worrying about the Federal Reserve. At least for now.

The U.S. stock market rose on Monday as investors judged that the economy still isn't growing fast enough for the central bank to cut back on its stimulus program.

U.S. manufacturing grew modestly in June after a pickup in new orders and stronger production, according to a private survey. The Institute for Supply Management said its factory index increased to 50.9 in June from 49 in the previous month.

The Standard & Poor's 500 index last month logged its first monthly decline since October after investors were unsettled by comments from Federal Reserve Chairman Ben Bernanke. Bernanke said June 19 that the Fed could ease back on its stimulus later this year and end it by the middle of 2014 if economy continues to recover.

"The market has ... stepped back from the knee-jerk reaction that the Fed news provided," said Jim Russell, a regional investment director at US Bank. The manufacturing report "came in strong enough - not too hot, not too cold."

A separate report on construction spending added to the picture of a gradually improving economy. Construction spending rose 0.5 percent in May compared with April, when spending was up 0.1 percent.

The Dow Jones industrial average gained 65.36 points, or 0.4 percent, to 14,974. The Dow gained as much as 173 points in during morning trading before drifting lower throughout the afternoon.

The S&P 500 index rose 8.68 points, or 0.54 percent, to 1,614. The Nasdaq composite rose 31.24 points, or 0.9 percent, to 3,434.

Eight of the 10 industry groups that make up the S&P 500 index rose, led by materials companies, a category that includes miners and chemical makers, and industrial companies. Utilities and phone companies were the only ones to decline.

The stock market likely benefited from investors putting money into stocks on the first day of the third quarter.

"New money is being put to work," said Quincy Krosby, a market strategist at Prudential Financial.

The market is more than twice as likely to gain as decline on the first trading day of a new quarter, according to data from S&P Dow Jones Indices. The index has risen 27 times and fallen 13 times during the past 10 years on the first day of the quarter.

This week's most closely watched economic release will be the government's monthly employment report Friday. Economists expect the U.S. added 165,000 jobs in June, a figure that would affirm the economy's steady, but slow, trajectory, said Scott Wren, a senior equity strategist at Wells Fargo Advisors.

"It's a confirmation of more of the same," said Wren. "More modest growth, more modest inflation, but not a big acceleration."

The Fed is currently buying $85 billion of bonds a month to keep interest rates low and encourage borrowing and spending.

 

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