Big news is no news for the stock market
After American voters and Federal Reserve officials weighed in on the economy, the stock market interpreted both developments as no surprise. But the Dow industrials gained enough Wednesday to finish at a two-year high.
The Dow and other major stock indexes closed up only after a surge out of negative territory in the last 15 minutes of trading. Earlier, the indexes danced across the break-even line numerous times after Tuesday’s election results and a new Fed plan to aid the economy hewed closely to expectations.
Voters turned control of the U.S. House over to Republicans but kept Democrats in charge of the Senate, matching predictions by pollsters.
And the Fed’s decision to buy an additional $600 billion of Treasury bonds in the next eight months also was consistent with analysts’ expectations.
“Everything has played its course out as the script was written going into today,” said Joe Cusick, senior market analyst at OptionsXpress.
The Dow gained 26.41 points, or 0.2%, to 11,215.13, its highest close since September 2008, when the financial system was in full crisis mode. The Standard & Poor’s 500 index rose 0.4%, while the Nasdaq composite edged up 0.3%.
The S&P remains below its 2010 high set in April. The Nasdaq topped its spring peak Tuesday.
Both the GOP victory and the Fed’s bond-purchase plan had been telegraphed for some time, contributing to a strong rebound in the stock market in the last two months. Since Aug. 31, the Dow has gained 1,200 points, or 12%.
Investors have generally viewed the Republican gains as a good thing -– partly due to a view that gridlock in Congress will be good for the economy. On Wednesday, big-name economists and investors argued about whether those expectations are well founded.
And some fear that the Fed’s plan may not be enough to help an economy that is dogged by unemployment and slow growth.
“Given the scale of the balance sheet problems facing households and financial institutions, it is simply too modest to overcome those obstacles,” Paul Ashworth, a senior economist at Capital Economics wrote in a note to clients. But such pessimism did not carry the day Wednesday.