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Stocks staged a major rally with the Dow Jones Industrial Average surging 217 points, after a Federal Reserve statement was seen as signaling that an end to the rate-tightening cycle is near. Blue chips scored their biggest gains in three years. The rally came despite the fact that the Federal Reserve raised the overnight bank lending rate to 5.25%. While the Feds have left the door open for future increases, investors see signs that the central bank may pause after its latest move.

Today, the Dow industrial average closed up 217.24 or 2% to 11,190.80, the broader Standard & Poor’s 500 index closed up 26.87 or 2.2% to 1,272.87, and the tech-heavy Nasdaq composite closed up 62.54 or almost 3% to 2,174.38. This is the biggest point gain for the Dow since March 2003, and the best gain for the Nasdaq in over two years. For the year, the Dow has climbed 4.1% and the S&P is up 1.8%, but the Nasdaq is still down 1.7%.

Market breadth was positive. On the New York Stock Exchange, advancers topped decliners by a margin of 27 to 4 on volume of 1.9 billion shares. On the Nasdaq, winners beat losers by a margin of four to one as 2.2 billion shares changed hands.

Investors cheered as the committee removed the phrase that some further measured policy firming “may” be needed with “any additional firming that may be needed” will depend on the economic outlook. This does point to an end that is approaching. Feds too appear concerned that growth is moderating; and that cannot be great for the economy.

New data too pointed toward a healthy economy. First-quarter gross domestic product was revised for a final time to show a 5.6% increase, the fastest rate of growth in about three years and stronger than the 5.5% gain expected by economists. Core consumer-price inflation rose at a 2% annual rate during the quarter, down from 2.4% in the fourth quarter. Initial jobless claims in the latest week rose by 4,000 to 313,000, while the four-week average of new claims dropped by 6,000 to 305,500, the lowest since Feb. 25. This is against the expected a rise to 311,000 and suggests a healthy job market.

Shares of McDonald’s Corp. closed up $1.59 or almost 5% to $33.56, after Merrill Lynch upgraded the burger chain to “buy” from “neutral”. Merrill Lynch forecasts improved sales and margins, particularly in Europe.

Walt Disney Co. closed up $0.50 or 1.7% to $29.88, after naming ex-Procter & Gamble CEO and Disney director John Pepper as non-executive chairman, succeeding former Sen. George Mitchell.

Shares of Tenet Healthcare closed down $0.13 or 2% to $7.10. The health-care provider has agreed to pay $725 million to settle U.S. Justice Department claims regarding its receipt of certain Medicare payments before 2003. The settlement also covers physician financial arrangements and Medicare-coding issues. Tenet also revealed a new plan to boost profitability. It will sell 11 hospitals and expand its capital investment program

Oil futures rose $1.33, or 1.8%, to $73.52 a barrel. In the past seven sessions, the price of crude has risen 6%.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter