The Dow Jones Industrials rose last Thursday and Friday as the Federal Reserve unveiled a fresh phase of monetary stimulus. In addition to the QE3 (Quantitative Easing round 3) stimulus, the Fed announced it planned to keep interest rates between 0 and 0.25 percent until mid-2015.
In addition to maintaining low interest rates, the new move will also buy $40 billion in mortgage-backed securities each month. The longevity for this buying has not been mentioned and remains up in the air depending on the strength of the economy in the future.
At a recent news conference, Fed Chairman Ben Bernanke said he didn’t think the latest move would solve the problem, but it has enough force to nudge the economy in the right direction. The move to buy $40 billion a month in mortgage bonds will do very little to motivate people to borrow and spend, because rates on mortgages and other loans are just above current record lows.
The Dow average shot up more than 200 points Thursday and increased 53 points Friday, within 575 points of its all-time high. That’s the highest it has reached since the start of the recent recession.
September has not always been a positive month for the Dow, but history suggests that stocks tend to outperform cash when the Federal Reserve is printing money. Even with positive results Thursday, investor sentiment toward stocks remains skeptical. According to Investors Intelligence, half of today’s advisers are either bearish or calling for a correction.
• Northern Trust Corp. (NTRS; $48.63) hit a new 52-week high last week above its previous high of $48.31. Northern Trust recently moved from Los Altos to a new location on Sand Hill Road in Menlo Park.
According to Jim McDonald, chief investment strategist at Northern Trust, investors should expect some increased volatility in markets as the U.S. navigates the election, the European debt crisis and the current global economic soft patch.
“We see the fourth quarter of 2012 and the first quarter of 2013 as having the greatest likelihood for market volatility. As the United States works through the Nov. 6 election and European fiscal issues, we expect the uncertainty to ease over a 12- month time.”
• Intel Corp. (INTC; $23.24) shares have slipped nearly 15 percent from their eight-year high in May, a result of concern over a slowdown in operating momentum. Intel slashed its sales target for the September quarter to a range with a midpoint of $13.2 billion, versus a prior estimate of $14.3 billion.
The warning was not a shock, because Dell and Hewlett-Packard also reduced their production estimates. At this time of year, makers of personal computers usually build up inventory for the holidays. Modestly valued at 11 times the lowest Wall Street estimate for 2012 earnings, Intel remains a long-term buy based on its two-to-three rebound product prospects.
• Apple Inc. (AAPL; $696.84) shares are hard to ignore – they hit $696.98 Friday on the basis of early demand for the iPhone 5, introduced in San Francisco Wednesday. News stations are reporting hourly on the status and delivery of the iPhone 5. Numerous reports expect Apple to sell 1.3 million iPhones in the preorder phase alone.