Wall Street rallied again Wednesday, with the Dow Jones industrial average scoring another record close, as investors grew more confident that the Federal Reserve has inflation in hand. An $8 billion bid from US Airways Group Inc. for Delta Air Lines Inc. added to the market’s momentum.
Minutes from the Fed’s Oct. 24-25 meeting showed the central bank’s governors remain more worried about inflation than the risk the economy would slow too quickly under higher interest rates. Investors seemed to be buying on the notion that the Fed had struck a balance between taming inflation and keeping the economy from falling into recession.
Investors also cheered the possibility of consolidation in the airline industry and remained upbeat following sharp gains Tuesday.
“I think the case for a soft landing is building,” said Stuart Schweitzer, global markets strategist at JP Morgan Asset and Wealth Management. “It looks as though the Fed is bringing the economy in for a true soft landing with growth slowing down but not too much.”
The Dow rose 33.70 points, or 0.28 percent, moving further into record territory. The Dow set a new trading high of 12,291.73. The energy, industrials and consumer staples sectors led the advance.
The broader Standard & Poor’s 500-stock index advanced 3.35 points, or 0.24 percent, and passed the 1,400 mark during the session for the first time since 2000. The S&P’s record high of 1,527.46 came in the spring of 2000. The Nasdaq composite index rose 12.09 points, or 0.50 percent, to its highest level in 5 3/4 years.
Bonds fell sharply, with the yield on the benchmark 10-year Treasury note rising to 4.62 percent from 4.57 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell. Oil rose 48 cents a barrel at $58.76 on the New York Mercantile Exchange after an Energy Department report showed stores of gasoline and distillates such as heating oil fell more than expected.
The mood on Wall Street late Tuesday and Wednesday resembled that of October, when the major indexes all rose at least 3 percent and Wall Street appeared confident the economy could slow without cooling too quickly. The Fed minutes lent support to the notion that the Fed will again leave interest rates unchanged when it meets in January. Many investors are hoping a rate cut could be in the offing next year. The Fed has left short-term rates unchanged at its last three meetings following a string of 17 straight increases over two years.
“I don’t think the Fed needs to wreck economy in order to contain inflation,” Schweitzer said, adding that the central bank should remain watchful of tightening labor costs. Last month, the nation’s unemployment rate fell to a five-year low.
While Schweitzer harbors concerns about investor expectations growing too quickly, he remains optimistic. “The rise does appear to be reasonably controlled and drawing in fresh money.”
Scott Fullman, director of investment strategy for Hapoalim Securities USA, said investors were riding momentum from Tuesday but that he saw risks of stocks being overbought. “We have people looking for a reason to come in and buy even though the markets are at high levels right now.”
Fullman said it would be wise for investors to consider hedging their positions, especially given that the run-up began in the normally weaker October period and continued into the generally stronger final months of the year, raising questions about how long the gains might hold.
The US Airways deal comes as many airlines struggle to find profits despite a rebound in air travel from earlier in the decade. Delta, operating under bankruptcy protection, has said it isn’t interested in a merger. In an unusual occurrence for the company making a takeover bid, US Airways shares rose, advancing $8.57, or 16.8 percent, to $59.50. The possibility for cost savings appeared to please investors. Delta rose 5 cents, or 3.4 percent, to $1.52.
Other airline stocks moved higher. Continental Airlines Inc. rose $4.72, or 12.3 percent, to $43.08, while United Airlines parent UAL Corp. gained $3.29, or 9 percent, to $39.99.
In other corporate news, Embrex Inc. surged $4.72, or 40 percent, to $16.64 after the company agreed to be acquired by drugmaker Pfizer Inc. for $155 million cash to better serve the poultry vaccination market.
RailAmerica Inc. jumped $3.44, or 28 percent, to $15.82 after the short line railroad operator agreed to be acquired by Fortress Investment Group LLC, a hedge fund manager, for $1.1 billion, or $16.35 per share. The offer, which includes debt, is a 32 percent premium to Tuesday’s closing price.
Overseas, Japan’s Nikkei stock average closed down 0.28 percent. Britain’s FTSE 100 closed up 0.70 percent, Germany’s DAX index rose 0.68 percent and France’s CAC-40 was up 0.64 percent.