Is the Fed Pumping Up the Dow?

Alcoa may have put to rest fears that earnings season would be an unqualified disaster after its positive quarterly report last night, but the real news today came when the Fed released its Beige Book, which indicated steady growth and stable or increased hiring activity throughout most of the nation. Although high gasoline prices are weighing on both businesses and consumers, the markets responded favorably to the report, adding to gains. At around 2:45 p.m. EDT, the Dow Jones Industrials (INDEX: ^DJI  ) were up 97 points to 12,813, while the S&P 500 gained 11 points to 1,369.

While Alcoa is the best performer in the Dow with a 7% jump today, several other stocks are reaping the benefit of the Fed's positive report. Both Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) are up sharply as the favorable outlook supports the theory that the economy can continue to grow at this modest pace, allowing the Fed to keep in place the policies that have helped boost bank balance sheets and earnings for years now. In fact, if conditions improve enough to allow the Fed to unwind its Operation Twist while keeping short-term rates low, the resulting steepening in the yield curve could actually make things even better for B of A and JPMorgan going forward.

Also on the upswing are stocks that are sensitive to government spending. Both Boeing (NYSE: BA  ) and United Technologies (NYSE: UTX  ) rose more than the overall market, as an improving economy also bodes well for possible restorations of defense budget cuts down the road. Boeing also revealed some enhancements to its 737 MAX aircraft to maximize fuel efficiency, while United Tech's Carrier heating and air conditioning division revealed a new line of gas furnaces that also sport energy efficiency.

The Fed and you
Nothing in the Beige Book suggests that the Fed plans to do anything to pump up stocks going forward. In fact, we've gotten indications that less Fed intervention may be coming. That might not make traders happy, but for long-term investors, getting the stock market off artificial life support is a key component of a lasting recovery.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter here. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On April 11, 2012, at 3:25 PM, dlbuffy wrote:

    Oh wow! Seriously with the article title?! That was absolutely pandering to the lowest common denominator there.

    You have NO proof that the Beige book is lying and you present absolutely NO content that would lend itself to such a prejoritive lead up. Is this what the Fool has become now? Not only are the articles mostly bare of anything more than what a ticker can tell me, now we have to stimulate hype for these pieces with sensationalistic lead ups. I am SERIOUSLY disappointed in what the Fool has become if this is the quality of the articles I find when out researching my investments.

    Check my profile, I have been around for a long time and even particpated in some of the education sessions that went on in the mid-ninties. This kind of stuff is completely different from the idea back then that you needed actual research and fundamental information. How is this article any different than Faux News or Bill Riley would have spouted?

  • Report this Comment On April 12, 2012, at 7:20 AM, nmartell22 wrote:

    "Alcoa and the Fed beige book made reassuring headlines that were badly needed by a beleaguered Dow that fell the past 5 days in a row going into today. Investors were experiencing a mid-year crisis where they questioned everything that had gotten the Dow to 4 year highs. Are stocks really worth this much? Is our economy going to keep growing, or could European debt ruin it for all? Why does my broker close his eyes while we are making trades, who is he thinking about?"

    Hilarious post from MarketSnacks.com:

    http://marketsnacks.com/2012/04/11/after-worst-loss-of-2012-...

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