Published in The New York Times
STOCKS AND BONDS
Nov. 2, 2010
Stocks ended higher Tuesday as voters went to the polls for midterm elections and policy makers from the Federal Reserve met to decide whether they would start a new round of purchases of Treasury securities to help stimulate the economy.
Such a decision, which will put downward pressure on long-term interest rates, is expected to be announced by the Federal Open Market Committee on Wednesday. Analysts said the market had been pricing in the prospect of the measure, called quantitative easing, for weeks as Fed officials made clear that the central bank was prepared to act if needed.
But even as investors weighed the remaining uncertainty about the size and schedule of such a program, stocks edged higher, as the dollar weakened against the euro and the yen, and as analysts forecast that the Republican Party would take control of the House of Representatives.
“I think some of the people are buying because they see a better market,” said Muriel F. Siebert, the president of Muriel Siebert & Company. “The Fed has made it obvious they stand ready to do what they think is good.”
Paul Ashworth, senior United States economist at Capital Economics, said the Republicans could make significant gains. “We continue to suspect that fiscal policy will end up being largely paralyzed for the next two years as a result,” he said in a research note.
Still, the election results will be quickly overtaken by the expected Federal Reserve announcement on Wednesday.
Many analysts expect the Fed purchases to be mostly of two- and 10-year Treasuries, although Goldman Sachs predicted last week that the Fed might include 30-year bonds in its program. The program, estimated to range from $500 billion to $2 trillion, is intended to stimulate the economy, but the extent of its effect on unemployment and growth is uncertain.
Interest rates could be pushed lower, which could further weaken the dollar, said Alan B. Lancz, the president of Alan B. Lancz & Associates.
On Tuesday, the dollar declined against the yen and the euro, spurred by a rate increase by the Australian central bank, stronger manufacturing data out of Europe and expectations of the additional Fed easing.
Marc Chandler, the global currency strategist for Brown Brothers Harriman, said the move by the Australian central bank started the selling of the dollar.
Also, a new business survey showed that the rate of expansion in euro zone manufacturing production accelerated in October, for the first time in three months. The Markit survey said the Purchasing Managers’ Index rose to 54.6, revised from the earlier estimate of 54.1 and up from September’s eight-month low of 53.7.
“So those two things helped trigger a dollar decline ahead of the F.O.M.C. meeting,” Mr. Chandler said.
The Dow Jones industrial average gained 64.10 points, or 0.58 percent, to 11,188.72. The broader Standard & Poor’s 500-stock index added 9.19 points, or 0.78 percent, to 1,193.57, while the Nasdaq composite index rose 28.68 points, or 1.14 percent, to 2,533.52.
The dollar index edged lower against a range of currencies. Interest rates were slightly lower. The Treasury’s benchmark 10-year note rose 10/32, to 100 10/32, and the yield slipped to 2.59 percent from 2.62 percent late Monday.
Equities have been buoyed in recent days by new statistics on the economy, and the monthly unemployment report for October on Friday will be watched closely for any improvements to the 9.6 percent unemployment rate and any increases in private payrolls.
Third-quarter corporate earnings have also provided some momentum.
On Tuesday, Pfizer’s shares declined just under 1 percent to $17.45 after it reported third-quarter profit was down 70 percent, below expectations.
MasterCard said its net income was up 15 percent, to $518 million, or $3.94 a share, from $452 million, or $3.45 a share, in the third quarter of 2009. Its share rose nearly 3 percent to $245.98.
And Kellogg’s share fell just over 2 percent, to $49.69, after it said net earnings were $338 million, a 6 percent decrease from the comparable quarter a year ago. Net sales declined 4 percent to $3.2 billion in the third quarter.
Bettina Wassener contributed reporting.
A version of this article appears in print on Nov. 3, 2010, Section B, Page 8 of the New York edition with the headline: Markets End Higher on Eve of Fed Decision.
