New York – Wall Street rallied back Wednesday as investors scared off by the Federal Reserve’s assessment of the economy in the previous session regained their confidence and bid stocks higher. The Nasdaq composite index reached a five-year high as investors focused on technology and smaller company stocks.
The advance reflects investors’ overall optimism about the economy and corporate earnings, although many remain concerned about rising costs for borrowing and energy.
“I think after yesterday’s sell-off, when we turned off the lights and came back in the morning, we got a chance to say, ‘You know what? We’ve overdone it here,”‘ said Arthur Hogan, chief market analyst at Jefferies & Co.
Stocks sold off sharply Tuesday, pulling the Dow Jones industrials down 95 points, after the Fed suggested more interest rate hikes would be needed to head off inflationary pressures. The Fed’s comments accompanied its decision to raise its benchmark rate a quarter percentage point to 4.75 percent.
The Dow on Wednesday rose 61.16, or 0.55 percent, to 11,215.70, held back somewhat by General Motors Corp., which fell after it announced earnings restatements in its mortgage arm.
Broader stock indicators also were higher. The Nasdaq gained 33.32, or 1.45 percent, to 2,337.78, its best close since Feb. 16, 2001, when it closed at 2,425.38. The Standard & Poor’s 500 index added 9.66, or 0.75 percent, to 1,302.89. Despite Wednesday’s gains, investors are still concerned that rising bond yields will siphon away interest in stocks. Bond yields, which shot higher Tuesday, rose slightly to 4.80 percent.
The rebound in stocks came despite another boost in crude oil prices, which rose 38 cents to settle at $66.45 a barrel on the New York Mercantile Exchange.
“The market continues to raise the level of tolerance it has for high energy prices,” Hogan said. But “I think if we spend more time here at this level, energy prices will become an issue.”
