Fin24

Fed's QE3 sparks rally on US markets

2012-09-14 08:04

Washington - US stocks soared on Thursday after the Federal Reserve announced a new "QE3" bond-buying programme focused on boosting jobs and pulling the housing market back to life.

After trading flat before the Fed's announcement, the Dow Jones Industrial Average ended up 206.51 points at 13,539.86.

The S&P 500-stock index added 23.43 to 1,459.99, while the tech-rich Nasdaq gained 41.52 to 3,155.83.

The Federal Reserve announced a new programme of purchasing $40bn a month in mortgage-backed bonds aiming at dragging down long-term interest rates.

It also pledged to keep its current ultra-low benchmark interest rate in place through mid-2015, and said it would continue its monetary easing efforts until it saw substantial improvement in the jobs market.

"Despite the fact that additional Fed easing was largely baked into financial asset prices recently, markets cheered the news," said Paul Edelstein, an economist at IHS Global Insight.

"US equity markets added roughly one percent following the statement. Counter-intuitively, however, bond prices fell, sending yields higher."

"It's unusual for the market to rally like that on news that's expected, but I think it was the nature of the Federal Reserve announcement, the aggressive size of the quantitative easing that was announced," said Chris Low of FTN Financial.

"Also the fact that it was open-ended, which changes the range of future possibilities, all of that together was very, very stimulative for the stock market."

Banks were big beneficiaries, with Bank of America up 4.8% and JPMorgan Chase 3.7%, Citigroup 4.2% and Wells Fargo 3.6%.

Housing shares took a big jump from the news, with builder Hovnanian up 3.3%, Comstock up 6.2%, Lennar 1.7% and Standard Pacific 3.7%.

Mining shares followed gold and other minerals higher, with Freeport McMoran jumping 4.3%, Newmont Mining up 5.2% and Barrick Gold, 4.8%.

Apple shares meanwhile pushed up 2% to its highest closing price ever, $682.98, after launching the ultra-sleek iPhone 5 to positive reviews.

Bond prices were mixed after having jumped ahead of the Fed decision. The yield on the 10-year Treasury was flat at 1.76%, while the 30-year yield rose to 2.97 % from 2.93% on Wednesday. Bond yields move inversely to prices.


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