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Markets soar as investors take 'Don't fight the Fed' to heart

November 4, 2010 | 10:34 am

Money is pouring into stocks, commodities and corporate bonds worldwide Thursday, one day after the Federal Reserve committed $600 billion more to try to bolster U.S. economic growth.

The old Wall Street adage is, “Don’t fight the Fed.” Investors are taking that to heart. The massive GOP victory on Tuesday also has thrilled plenty of investors who see voters' turn as unequivocally good for corporate America.

The Dow Jones industrial average was up 184 points, or 1.6%, to 11,399 at about 10:30 a.m. PDT, a new two-year high. Market breadth is powerfully positive, with 2,454 issues up on the New York Stock Exchange and just 517 down.

Stocksfloor The bulls are licking their chops. “Despite a strong market rally from summer lows, stocks remain cheap, and when compared to interest rates they remain extremely cheap,” said David Bianco, chief U.S. equity strategist at Bank of America Merrill Lynch, in a note to clients Thursday.

The rally is global. Most major stock indexes in Asia and Europe were up between 1% and 2% for the day.

Commodity prices are soaring again, with the Reuters/Jefferies CRB index of 19 raw materials up 2%, also to a two-year high.

If the Fed is going to keep pumping money into the financial system via Treasury bond purchases, investors are figuring that that cash could eventually end up in a lot of places that the Fed might not necessarily prefer -- including commodities.

Crude oil prices are nearing their 2010 high reached in April, with near-term futures up $1.64 to $86.33  a barrel Thursday.

Meanwhile, the Fed’s new “quantitative easing” commitment is having the desired effect in the Treasury market: The yield on five-year T-notes has plunged to new generational low of 1.03% from 1.11% on Wednesday. The 10-year T-note has dropped to 2.48% from 2.62%.

The day’s loser, not surprisingly, is the dollar: The DXY index of the buck’s value against six major currencies is down 0.8% to 75.88, the lowest in nearly a year. Traders are betting that Fed’s decision to print a torrent of new money inevitably will debase the dollar further.

What’s bad for the greenback is once again a tonic for gold: The metal is up $44, or 3.3%, to a record high of $1,381.80 an ounce in futures trading.

Even before the Fed really gets going with bond purchases, for now there seems to be enough money around to push nearly every asset higher.

The markets' next big test comes Friday with the government's report on October employment trends.

-- Tom Petruno

Photo: On the New York Stock Exchange floor. Credit: Richard Drew / Associated Press

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