NEW YORK — Stocks on Tuesday got a brief bump following word that the Federal Reserve is ready to do more to help the economy but ended mostly lower after the central bank disappointed some investors by not taking any bold new actions.
Treasury prices rallied as investors saw the Fed’s announcement as a signal that more bond purchases were on the way.
The Fed said it is concerned that inflation is below levels consistent with a healthy economy and indicated that it is ready to provide “additional accommodation” to support the recovery. That would mean more purchases of Treasurys or other kinds of debt, which would keep interest rates low and hopefully encourage borrowing.
“They left themselves as much room as they possibly could,” said Bill Stone, chief investment strategist at PNC Wealth Management. “In the bond world, the coast is clear for buyers.”
Treasurys rose sharply after the Fed’s announcement, sending interest rates lower. The yield on the 10-year Treasury note fell sharply, while its price jumped. The yield is a common benchmark for setting interest rates on corporate debt and mortgages.
The Fed’s statement, which came after a one-day meeting of its interest-rate committee, had only a temporary effect on stocks. Hopes had been building that Tuesday would bring news of a specific new bond- purchasing program, and disappointment ensued when one didn’t materialize.
The Dow rose 7.41, or 0.1 percent, to close at 10,761.03. It’s still up 7.5 percent for September, an unusually large gain for a month that is historically weak for stocks.
The Standard & Poor’s 500 slipped 2.93, or 0.3 percent, to 1,139.78, while the Nasdaq composite fell 6.48, also 0.3 percent, to 2,349.35.
The weakness in broader indexes suggested that a three- week rally on the stock market may be losing steam as stocks start to look expensive to some investors. The S&P 500 is still up 8.6 percent for the month, while the Nasdaq is up 11.1 percent.
Tom Porcelli, head of U.S. market economics at the Royal Bank of Canada, said there’s a good chance the Fed will decide to add more debt to its books at the next meeting of its rate-setting committee Nov. 2. But another round of bond-buying by the Fed may offer the economy little help, he said. The last round of Fed purchases had the effect of lowering lending rates by a half a percentage point.
Now, a move by the Fed would have probably less impact. Borrowing rates are cheap, but borrowing is still weak.
“The fact remains that the economic backdrop is the driver of lending, not low rates,” Porcelli said in a note to clients after the announcement.
The dollar fell against other major currencies, while gold prices rose to a record late in the day.
