The market managed to finish in the green on Wednesday after the Federal Reserve announced plans to purchase $600 billion of longer-term Treasury notes by mid-2011. Ben Bernanke has pushed a lot of his chip stack in and plans to pump up to $75 billion a month to keep interest rates at rock-bottom levels for an “extended period of time”.
We said yesterday that $500 million was a given and the Fed was walking a tight line between relief and disappointment. Anything less than $500 billion to start would have led to a sell-off while something like $750 billion could have signaled panic. The Fed is committed to $1 trillion (or more) so it was a good number for the market to digest.
Although the Fed did say the economy’s progress has been “disappointingly” slow, the market was able to erase it slight losses by the closing bell as the major indexes finished near two-year highs.
The Dow finally closed above our 11,200 target as it added 26 points, or 0.2%, to settle at 11,215. The index traded to a high of 11,226 and will now target 11,258. A break above this level clears the way for our target of Dow 11,600 by year-end. The Nasdaq was the first major index to confirm an extended bull rally when it hit our target of 2,500 and we have been waiting for the Dow and S&P to join in. Thank you blue-chips.
The S&P 500 continues to struggle with our 1,200 target and tested 1,198 before ending 4 points higher, or 0.4%, at 1,197. The index hasn’t finished above this level since April and has further resistance at 1,220. However, we think it will join its counterparts and eventually make a run at 1,250 by Christmas and 1,300 in early 2011.
The Nasdaq continues to impress and touched a 52-week high of 2,541 before closing at 2,540, a gain of 7 points, or 0.3%.
Futures are pointing towards a strong open this morning despite a lousy jobless claims number. After two weeks of declines, the Labor Department said initial claims for unemployment benefits rose by 20,000 to a seasonally adjusted 457,000. The market was expecting another decline and a print below 450,000.
Despite the miss, the Dow is on track to open with a triple-digit pop as the blue-chip futures are up 98 points to 11,275 while the S&P futures are advancing by 11 points to 1,208. The Nasdaq 100 futures are higher by 18 to 2,182.