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The Federal Reserve’s statement on monetary policy which reiterated its commitment to keep interest rates low in pursuit of economic growth pushed the markets higher, with the Nasdaq recording its best close in ten years. Upbeat economic reports combined with the Federal Chairman’s optimistic press-briefing to strengthen the indices on a great trading day.

The Dow Jones Industrial Average (DJIA) gained 0.8% to settle at 12,690.96. The Standard & Poor 500 (S&P 500) climbed 0.6% to close at 1,355.66. The Nasdaq Composite index recorded its best finish since December 12, 2000, at 2,869.88, gaining 0.8%.  On the New York Stock Exchange, for every three stocks that rose, two were on the declining side and the consolidated volumes were 4.2 billion shares. For the week, all these benchmarks have remained in the green so far.

Much was at stake for the markets yesterday, as a decision was required to be made to secure the nation’s economic future. Market watchers believed that the Federal Open Market Committee would bring to a close the $600 billion bond purchase program, suggesting an economic recovery. However, surging commodity prices and a drop in employment figures suggested otherwise. Finally, at the first of four annual press briefings, Federal Reserve Chairman Ben Bernanke announced that the FOMC had decided to close the asset purchase on the scheduled date and subsequently freeze the size of its balance sheet. In a first-of-its-kind press conference which followed the meeting, Bernanke also said that higher commodity prices or inflationary pressures would be short-lived. The Fed also reiterated that target rates would remain between 0% and 0.25%. Mentioning the unattractive nature of the trade-offs, Bernanke also ruled out the possibility of a third round of quantitative easing. 

As we interpret the statements made by the chairman, employment worries appear to be a larger concern than surging commodity prices. Recently, data released by the Labor Department regarding initial claims has failed to paint a rosy picture. The latest report showed initial claims decreased to 403,000 for the week ending April 16, against the expected decrease to 395,000. This was the first time jobless claims were above the 400,000 mark for two straight weeks since January. Though initial claims showed a decline, there was little to cheer about the jobs data as only claims below the 400,000 mark generally suggests steady job growth. By the end of the year, the Fed expects the unemployment rate to fall to 8.4%, which is currently at a two-year low of 8.8%. The figure of 8.8% may be a two-year low, but this two year period encompasses the economic downturn and the ensuing recovery. As an absolute figure, the rate is fairly high, reflecting a state of concern. Bernanke, therefore, sound quite justified when he brings the focus on the jobs market.

Inflationary worries had affected the economy in the past quarter but Bernanke believes surging commodity prices will be short-lived. Higher prices obviously affect the macro and micro economy. While consumers had to shell out more money from their pocket, manufacturers also had to bear the burden of paying more for raw materials. The inflationary woes owed much to the surging crude prices which took their cue from the violence in the oil-rich Persian Gulf nations. With the hope of no further turmoil that will bolster another round of inflationary worries, higher prices might be just cooling off, at least for the next few months.

The earnings season has remained more favorable compared with the prior quarter and has subsequently pushed up the indices. The S&P has enjoyed a strong earnings season and of the 197 S&P 500 companies, 77% topped expectations versus 73% exceeding estimates last year.  Earnings remained mixed yesterday and companies reporting positive results included Boeing Co. (NYSE:(BA - Analyst Report) and Northrop Grumman Corporation (NYSE:(NOC - Analyst Report) and their shares climbed 0.8% and 0.7%, respectively. On the flip side, shares of Rockwell Automation Inc. (NYSE:(ROK - Analyst Report), Parker Hannifin Corporation (NYSE:(PH - Analyst Report), ConocoPhillips (NYSE:(COP - Analyst Report) and National Oilwell Varco, Inc. (NYSE:(NOV - Analyst Report) slipped 8.5%, 5.1%, 1.7% and 4.6%, respectively, after their disappointing earnings results.

Economic data from the Commerce Department also bolstered bullish sentiments as it reported that businesses increased their orders for long-lasting manufactured goods. Durable Orders increased by 2.5% or $5.0 billion, during March to $208.4 billion, against the expected 2.2% increase. This increase, up three consecutive months, follows a 0.7% February increase, revised from an originally reported decline of 0.9%.

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