Stock rally put on hold as traders opt for Treasurys, gold after Fed’s latest statement

By Stephen Bernard, AP
Wednesday, September 22, 2010

Stocks waver as traders move into Treasurys, gold

NEW YORK — Traders put their September stock rally on hold and moved into Treasurys and gold Wednesday, a day after the Federal Reserve said it was ready to take more action to boost the economy.

The Dow Jones industrial average fell about 34 points in afternoon trading.

With no new economic data out Wednesday and the Fed’s announcement late Tuesday having a bigger impact on the bond and currency markets, Bob Auer, portfolio manager of the Auer Growth Fund, said it was natural for stocks to pause.

Major indexes have been on a tear this month as economic reports have consistently indicated the economy continues to grow slowly. The affirmation of any growth has been enough to propel stocks higher.

“People are saying, ‘I’ve got some profits, let’s book ‘em,’” Auer said. Entering Wednesday, the Dow had risen 13 of the past 15 days and climbed 7.5 percent in September.

The Fed didn’t announce specific actions to strengthen the economy, but investors interpreted its statement as a signal that the central bank could step up its bond-purchasing program down the line. The Fed said the economy is still recovering but at a sluggish pace.

Investors had little incentive to move more money into stocks, so they turned their focus to bonds and gold. Treasurys rose again, pushing their yields lower, and gold climbed to another record.

If the Fed starts purchasing bonds, it would have the dual effect of raising demand for Treasurys and hurting the value of the dollar. That’s why bond prices rallied Wednesday and traders swapped out dollars for gold and other currencies.

The Dow fell 33.86, or 0.3 percent, to 10,727.24 in afternoon trading.

The Standard & Poor’s 500 index fell 5.92, or 0.5 percent, to 1,133.86, while the Nasdaq composite index fell 21.32, or 0.9 percent, to 2,328.03.

The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.52 percent from 2.58 percent late Tuesday. Its yield is often used to set interest rates on mortgages and other loans.

Gold climbed to a record $1,298.00 an ounce before falling back to $1,291.30 an ounce.

The euro hit a five-month high against the dollar.

In corporate news, Microsoft Corp. shares dipped 68 cents, or 2.7 percent, to $24.47 after the company said it was raising its dividend for the first time in two years.

Adobe Systems Inc. shares plummeted after the computer software maker said its fiscal third-quarter profit surged, but it said revenue during the current quarter will likely fall short of expectations. Adobe shares fell $6.54, or 19.9 percent, to $26.40.

About two stocks fell for every one that rose on the New York Stock Exchange where volume came to 4307 million shares.

Overseas, Britain’s FTSE 100 fell 0.4 percent, Germany’s DAX index fell 1.1 percent, and France’s CAC-40 dropped 1.3 percent. Japan’s Nikkei stock average fell 0.4 percent.

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