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Stocks rallied and lifted the Dow Jones Industrial Average by over 160 points, after the Federal Reserve left interest rates unchanged as expected, but also opened the door for the central bank to consider risks to the economy on an equal footing with inflation risks. The Fed no longer said that data are suggesting firmer economic growth, instead describing those indicators as mixed. It also dropped a previous reference that additional firming of monetary policy may be needed. This implies that the central bank is more likely to cut rates than raise them anytime soon.

Today, the Dow Jones industrial average closed up 159.42 or 1.30% to 12,447.52, the broader S&P 500 closed up 24.10 or 1.71% to 1,435.04, and the Nasdaq closed up 47.71 or 1.98% to 2,455.92. The Dow saw its best one-day point gain since July of last year.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by nearly 27 to 5 on volume of around 1.63 billion shares. On the Nasdaq, advancers beat decliners 22 to 7 on volume of 2.21 billion shares.

The Fed policy-makers concluded their two-day policy meeting by keeping the fund rate unchanged at 5.25%, in line with expectations. In the closely watched statement, the central bankers changed the language to suggest that they were a bit more worried about the slower economy than previously, noting that “recent indicators have been mixed.” The statement no longer said “additional firming may be necessary.” Investors took this omission as implying that the Fed was more likely to cut rates going forward than raise them.

Shares of Morgan Stanley closed up $5.22 to $81.33, after the bank reported higher earnings that topped estimates. It posted a 70% rise in profit for the first quarter, handily beating Wall Street estimates.

Stock of Oracle closed up $0.62 or 3% to $18.17, after it posted quarterly sales and earnings that rose from a year ago. Earnings were released after the close Tuesday. Its CFO Safra Catz cited a strong global performance across all product lines and said the world’s biggest database software maker turned in its fastest third-quarter growth in more than five years.

Stock of Adobe Systems jumped 6.3% after it posted a 37% profit rise, even though sales dropped more than predicted. The net income for the quarter rose to $181.9 million, from $156.3 million a year ago as sales rose 34% to $682.2 million, helped by revenue from Macromedia.

Shares of FedEx closed down $1.30 to $110.99, on reporting lower quarterly earnings that topped estimates and issued a 2007 forecast that is short of expectations. The company cited a slower economic environment, lower fuel surcharges and severe winter storms. FedEx reported net income of $420 million, compared with $428 million a year earlier.

U.S. light crude oil for May delivery rose 1 cent to settle at $59.61 a barrel on the New York Mercantile Exchange. Oil prices were volatile after the release of the weekly oil inventories report.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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