No Surprise: Stocks Trade Up on Fed Yawner; Lorillard Leaps on Merger Talks

Stocks made back much of yesterday’s losses as the minutes from the last FOMC meeting revealed nothing we hadn’t already known. Goldman Sachs (GS) and Microsoft (MSFT) led blue chips higher, while Tiffany (TIF), Lorillard (LO) and Netflix (NFLX) were the big gainers among large-company stocks.

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The Dow Jones Industrial Average rose 158.75 points, or 1%, to 16,533.06 today, while the S&P 500 gained 0.8% to 1,888.03. The Nasdaq Composite advanced 0.8% to 4,131.54, while the small-company Russell 2000 finished up 0.5% at 1,103.63. The 10-year Treasury yield rose 0.03 percentage point to 2.54%.

Goldman Sachs rose 1.9% to $159.35 today, making it the biggest gainer in the Dow Jones Industrial Average, after announcing that it was seeking to sell its commodity warehouse business, while Microsoft gained 1.7% to $40.35 a day after launching its super-sized tablet computer. Microsoft was the second-largest percentage gainer in the Dow.

Tiffany surged 9.2% to $62.63 after raising its earnings guidance, while Netflix climbed 5.1% to $390.60 after announcing that it would expand into six European countries. Lorillard spiked 10% to $62.63 on reports that it’s in talks to be purchased by Reynolds American (RAI). Reynolds American gained 4.4% to $59.77.

As for the Fed minutes, let’s just say they caused investors to hit the snooze button. Pierpont Securities Stephen Stanley explains:

I found the April FOMC minutes to be unusually bland, perhaps not surprising since the April FOMC statement was virtually unchanged from the March communiqué…The two key topics of conversation were a special discussion of policy normalization and the usual discussion of the economic and policy outlook.

The former has been a topic of much speculation since the announcement that there was a joint Board of Governors/FOMC meeting at the beginning of the regular FOMC gathering.  This effort was part of "prudent planning" and "did not imply that normalization would necessarily begin sometime soon." … Meanwhile, the discussion on the economy held few surprises.  The outlook was said not to have changed materially since the March meeting.

Gluskin Sheff’s David Rosenberg notes that the recent decline in Treasury yields has amounted to “a de facto rate cut.” He explains why:

This is effectively ade factorate cut by the Fed since this yield move would not have been possible with the new forward guidance on the future policy path. It’s akin to an exogenous positive shock to the economy, especially the rate-sensitive sectors (housing, autos, capital goods) — as if the Fed eased 50 basis points via the back end of the yield curve…This bond yield decline, contrary to reflecting a softer pace of economic activity ahead, is more likely going to bolster the macroeconomic outlook for the spring and summer months. So look through this corrective phase in equities and look forward to picking up cyclical and growth segments at better prices.

Looks like the market might finally be coming around to that point of view.