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Stocks ended higher as a sharp drop in oil prices and a batch of strong earnings reports led by Oracle Corp. and Morgan Stanley helped the market overcome some mild disappointment over the Federal Reserve’s decision to leave the door open to further interest-rate increases. Some investors also expressed concern that there may be some debate over the inflation outlook among Fed members after one central bank official dissented with the majority decision to keep short-term rates unchanged.

Today, the Dow Jones industrial average closed up 72.28 or 0.63% to 11,613.19, the broader Standard & Poor’s 500 index closed up 6.87 or 0.52% to 1325.18, and the Nasdaq composite closed up 30.52 or 1.37% to 2,252.89. The S&P is just shy of its highest level.

Market breadth was positive. On the New York Stock Exchange, winners topped losers almost 2 to 1 on volume of 1.61 billion shares. On the Nasdaq, advancers beat decliners by roughly 9 to 5 as around 2.22 billion shares changed hands.

The central bank opted to hold the key short-term interest rate unchanged at 5.25% for the second straight meeting, as expected. In its statement, it reiterated that the economy is slowing and that this will help take the edge off upward pressure on inflation. It also acknowledged that energy prices have come down recently. It also acknowledged that the economy was slowing, and that is a sign that the central bank may not need to raise rates further anytime soon. However, it has left the door open for further increases if inflation does not come down.

In is clear that the statement cements the case for stocks to keep doing well, unless profits get hit. While corporate profits are at risk as the economy slows further, but the market looks reasonably priced relative to earnings. It is expected that stocks will be able to build on gains through the end of the year, notwithstanding periods of volatility and small declines.

The star of the day, Oracle jumped up $1.80 or 11% to $17.93, after reporting quarterly earnings that rose from a year earlier and topped forecasts. The company also issued a current-quarter forecast that impressed investors. Net income for the first quarter rose 29% to $670 million, and revenue rose nearly 30% to $3.59 billion. The EPS is 18 cents against the expected 16 cents. The software giant has benefited from CEO Larry Ellison’s $20 billion acquisition spree in a seasonally challenging period.

On reporting third-quarter profit that jumped from year-ago levels, shares of Morgan Stanley closed up $0.50 to $72.35. The company has overcome a difficult summer trading environment, and has largely mirrored the performance of rivals such as Lehman Bros, Goldman Sachs and Bear Stearns.

Shares in Circuit City Stores Inc. closed down 3 cents at $26.26, despite reporting second-quarter profit that soared as flat-panel TVs and notebook computers flew off shelves. This also prompted the company to lift its full-year sales forecast.

Shares of Boeing Co. shares closed up 1.8% at $76.19 on a report that a consortium it leads has emerged as the winner of a federal contract to provide infrastructure and monitoring systems aimed at bolstering U.S. border security. This contract is valued at about $2.5 billion over four years.

U.S. light crude oil for October delivery sank $1.20 to settle at $60.46 a barrel on the New York Mercantile Exchange. The weekly oil inventories report, showed a rise in distillate supplies. Distillate supplies gain in importance as winter approaches because they include heating oil stocks.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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