U.S. stocks surged Monday after a Federal Reserve official said the central bank shouldn’t raise interest rates too soon, which came as a big relief to investors. After a market nosedive on Friday, investors bought safe investments like household goods makers and phone companies. Technology companies also jumped.
Stocks started the day lower following Friday’s drop, but they soon rallied. Investors were pleased when Lael Brainard, a member of the Federal Reserve board, said the Fed shouldn’t raise interest rates quickly because that could hurt the economy. The biggest gains went to safe investments that pay big dividends, as they are more enticing to investors when interest rates and bond yields are low.
Stocks had plunged Friday following remarks from another Fed official that suggested interest rates could go up next week.
David Kelly, chief global strategist for JPMorgan Funds, said he thinks Federal Reserve policymakers seem “noncommittal” and aren’t sure if they should raise interest rates now or not. In his opinion, the Fed’s cautious attitude toward raising interest rates even a little is causing strong market reactions.
“The more cautious they are, the more sensitive the market becomes,” he said.
The Dow Jones industrial average jumped 239.62 points, or 1.3 percent, to 18,325.07. The Standard & Poor’s 500 index rose 31.23 points, or 1.5 percent, to 2,159.04. The Nasdaq composite surged 85.98 points, or 1.7 percent, to 5,211.89.
The gains in the main three U.S. indexes made up for more than half of Friday’s losses.
As investors sought safe-play picks, retail giant Wal-Mart rose $1.64, or 2.3 percent, to $71.94 and Procter & Gamble gained $2.01, or 2.3 percent, to $88.25. Phone companies also rose and AT&T gained $1, or 2.5 percent, to $40.71. Those stocks took some of the biggest losses Friday.
HP agreed to buy Samsung’s printer business for $1.05 billion, and HP stock rose 54 cents, or 3.9 percent, to $14.49. That helped take technology stocks higher. Elsewhere, Apple rose $2.31, or 2.2 percent, to $105.44 and communications chip maker Broadcom picked up $3.70, or 2.3 percent, to $164.48.
Canadian companies Agrium and Potash Corp. of Saskatchewan agreed to combine into the world’s largest crop nutrient company. The companies value their combined business at $36 billion, and Potash shareholders will own a majority of stock in the new company. Potash stock lost 21 cents, or 1.2 percent, to $16.76 and Agrium dipped $2.57, or 2.7 percent, to $92.64.
Markets overseas took sharp losses following the rout in the U.S. Friday. Germany’s DAX fell 1.3 percent while the CAC-40 in France also lost 1.2 percent. The FTSE 100 index of leading British shares gave up 1.1 percent. Japan’s benchmark Nikkei 225 index lost 1.7 percent and South Korea’s Kospi slid 2.3 percent. In Hong Kong the Hang Seng shed 3.4 percent.
U.S. stocks had plunged late last week after Federal Reserve Bank of Boston President Eric Rosengren said there’s a case to be made the U.S. central bank should raise rates sooner rather than later.
Investors are not sure if the central bank will raise interest rates, and they’re not sure the economy is healthy enough to handle that. Higher rates threaten stocks by making interest-paying savings accounts and bonds more attractive to investors. They could also ding corporate earnings by raising companies’ borrowing costs.