US stocks spike after Fed decision

Wall Street stocks initially spiked immediately after the the Federal Open Markets Committee cut both the Fed funds rate and a discount rate by 25 basis points, bringing the Fed funds rate to 2 per cent.

The US central bank was careful not to suggest that it thinks the rate-cutting cycle is necessarily over, and left open the option of cutting rates in June, or resuming rate cuts later in the year if required.

But weak growth figures that showed the US economy only narrowly avoided outright contraction in the first quarter may make further cuts more likely, some analysts said.

According to the Commerce Department, first quarter GDP growth was a sluggish 0.6 per cent. More worryingly that number was flattered by rising inventories – a sign that stalling consumer spending and investment is forcing companies to build stocks.

On the positive side, core prices, a measure of inflation, rose a less-than-expected 2.2 per cent, down from 2.5 per cent.

With all ten key sectors in positive territory, by lunchtime in New York the benchmark S&P 500 was up .05 per cent to 1,398.37 while the Dow Jones Industrial Average was 0.9 per cent higher at 12,952.93.

In April as a whole the S&P 500 has added 5.5 per cent thanks to strong results from the likes of Google and Boeing, which have helped ease fears about the likely fallout out from a US slowdown.

The Nasdaq Composite rose 0.4 per cent to 2,438.11.

The day’s portion of earnings reports was mostly positive.

Consumer staples rallied strongly thanks to a handful of better-than expected results from the industry heavy weights. Procter & Gamble led the pack after the consumer-products giant said third-quarter profit hit $2.71bn thanks to better international sales and higher prices.

The numbers beat analysts’ forecasts and combined with plans to sell underperforming businesses, reinforced impressions that P&G, with its strong emerging market presence, was well placed to weather any US downturn. P&G shares rose 2 per cent to $67.20.

Meanwhile, Dean Foods and Kraft Foods bounced after they posted better-than-expected first-quarter profits by successfully passing on rising raw material costs to the consumer.

Dean rose 5.6 per cent to $23.75 while Kraft added 3.4 per cent to $31.81.

Colgate-Palmolive was a rare laggard in the sector after it said first-quarter earnings fell 4 per cent to $466.5m on restructuring charges. Sales grew 16 per cent to $3.71bn but the shares dipped 4.5 per cent to $72.35.

Consumer discretionary stocks also made ground after General Motors reported smaller-than-expected losses for the first-quarter. Automotive earnings improved despite the impact of the American Axle strike and weak domestic markets.

The car company continued its recent strong run, jumping 13.1 per cent to $23.98. It was followed up by peer Ford, which climbed 3.5 per cent to $8.40.

Garmin, the maker of satellite navigation devices, and OfficeMax conspired to limit any major gains in the sector however.

Garmin shares tumbled 10.4 to $41.60 after it blamed poor first-quarter profits and sales on intensifying competition with rival TomTom, which drove down prices.

OfficeMax also slumped after it posted first-quarter earnings that massively undershot analysts estimates. The office supply retailer lost 9.6 per cent to $18.27.

Financials were in focus after Citigroup, the biggest US bank, announced plans to sell $4.5bn of stock to shore up its balance sheet which has been dented by massive writedowns on subprime-related mortgages.

The shares slipped 2.8 per cent to $25.59 as investors worried that the capital raising would dilute their holdings. An index of financial stocks added 0.1 per cent however amid the broader market rally.

Meredith Whitney, an analyst at Oppenheimer, said: “The fact that Citi raised capital at this time did not come as a surprise to us, but the fact that the company raised such a small amount of capital at this time confounds us.”

Ms Whitney estimates that Citi needs to raise an additional $10bn to $15bn or sell several hundreds of billions worth of assets “in order to truly shore up its capital position.”