U.S. stocks gain as Fed sees end to stimulus; Dow rises 0.47%


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Investing.com - U.S. stocks rose on Wednesday after the Federal Reserve said it would likely close its stimulus program at the end of this year, a sign the economy is improving.

At the close of U.S. trading, the Dow 30 rose 0.47%, the S&P 500 index rose 0.46%, while the NASDAQ Composite index rose 0.63%.

The Volatility S&P 500 index, which measures the outlook for market volatility, was down 3.76% at 11.53.

The economy continues to improve and will stand on its own two feet without the support of monetary stimulus programs within a few months, markets concluded after digesting the minutes of the Federal Reserve's June policy meeting.

The Fed is currently buying $35 billion in Treasury and mortgage debt a month to spur recovery, a monetary policy tool known as quantitative easing that aims to stimulate the economy by suppressing long-term interest rates.

The stimulus program aims to entice investors out of safe-haven asset classes like the U.S. dollar and into equities with the hope investing and hiring follow.

The Fed has gradually been trimming the amount of bonds it purchases by $10 billion a month, and by end of this year, the program should close if the Fed continues to taper on its current trajectory.

"While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year," the minutes read.

"Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction."

Expect that final cut to come in October if recovery continues at its current pace.

"Participants generally agreed that if incoming information continued to support its expectation of improvement in labor market conditions and a return of inflation toward its longer-run objective, it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors," the minutes read.

"If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting."

The Fed's words bolstered stocks, as even through equities move higher on stimulus programs, a decision to end the program signifies economic recovery is gaining steam.

Still, concerns among monetary authorities that excessive risk-taking may be occurring in the countrys' financial markets kept investors somewhat cuatious.

Corporate bond spreads have been falling as have volatility indicators such as the VIX, which could indicate that investors are taking on risks despite the possibility of facing losses for which they might not be fully prepared.

"Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy," the minutes read.

"They agreed that the Committee should continue to carefully monitor financial conditions and to emphasize in its communications the dependence of its policy decisions on the evolution of the economic outlook; it was also pointed out that, where appropriate, supervisory measures should be applied to address excessive risk-taking and associated financial imbalances."

Still, monetary policy will remain accommodative and will promote "favorable financial conditions required to support the economic expansion," words that Wall Street applauded.

Leading Dow Jones Industrial Average performers included Walt Disney Company (NYSE:DIS), up 1.59%, Cisco Systems Inc (NASDAQ:CSCO), up 1.50%, and Procter & Gamble Company (NYSE:PG), up 1.37%.

The Dow Jones Industrial Average's worst performers included Dupont Fabros Technology Inc (NYSE:DFT), down 0.44%, Pfizer Inc (NYSE:PFE), down 0.32%, and General Electric Company (NYSE:GE), down 0.25%.

European indices, meanwhile, ended the day largely higher.

After the close of European trade, the DJ Euro Stoxx 50 rose 0.66%, France's CAC 40 rose 0.40%, while Germany's DAX rose 0.36%. Meanwhile, in the U.K. the FTSE 100 fell 0.30%.

On Thursday, the U.S. is to release the weekly government report on initial jobless claims.

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This article appears in: Investing , Forex and Currencies

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