Stocks turned mixed Wednesday afternoon, erasing earlier losses, after the Federal Reserve said it will keep interest rates near zero for much longer than it had previously announced. Demand for ultra-safe Treasurys soared, pushing bond yields lower.
The Fed’s monetary policy committee said it is unlikely to raise interest rates before 2014, extending a period of record-low rates by more than a year. Lower interest rates can encourage investment in stocks by reducing traders’ returns from bonds.
The Fed plans to keep interest rates very low in part to make loans more affordable for people and companies. Access to credit is vital for the economic recovery.
The Dow Jones industrial average and Standard & Poor’s 500 index both turned slightly positive shortly after the Fed’s 12:30 p.m. Eastern announcement. Both had been solidly negative all morning; the Dow had lost as many as 95 points.
The yield on the 10-year Treasury note plunged to 1.98 percent from 2.05 percent an hour before the Fed announcement. Bond yields fall when demand for them increases.
Markets had opened mostly lower on fears about Greece’s slow progress in talks with bondholders about reducing the nation’s crushing debt load.
Tech stocks rose, bucking the wider market, after consumer electronics giant Apple Inc. reported a best-ever quarter driven by strong sales of iPhones and iPads.
Apple’s stock jumped 6.2 percent, helping lift the Nasdaq composite index by 16 points, or 0.6 percent, to 2,802. The Nasdaq is up 7.6 percent this year, more than twice the gain for the Dow Jones industrial average.
The Dow was down 19 points, or 0.2 percent, at 12,657. The S&P 500 index fell a fraction to 1,313.
The declines follow a two-month surge that lifted the broad S&P 500 index by 13 percent since its recent low on Nov. 25. As fears recede about the European debt crisis, big-time investors such as hedge funds will be drawn back into the market, fueling more gains, said Joe Bell, senior Equity Strategist at Schaeffer’s Investment Research.
After such a strong rally, “we could see a … slight pullback or consolidation; but overall we’re bullish,” Bell said.
Later Wednesday, Fed Chairman Ben Bernanke will take questions from reporters in his quarterly news conference.
European markets mostly closed lower as Greece’s bondholders held a closed-door meeting to discuss whether they will continue to negotiate with the crisis-stricken nation.
Greece wants the investors, mostly banks and hedge funds, to voluntarily write off about half of its debt. Otherwise, Greece will be unable to obtain needed bailout cash and will default. That could set off a financial crisis similar to the aftermath of Lehman Bros.’ failure in 2008.
Benchmark stock indexes in Italy and London closed a half-percent lower. Borrowing costs for Italy and France increased, a sign of traders’ fears that the debt crisis will spread. Adding to the gloom was a report that Britain’s economy shrank by 0.2 percent in the fourth quarter.
With Apple’s gains Wednesday, the Cupertino, Calif. electronics maker again surpassed Exxon Mobil Corp. as the company with the biggest market value. Apple said late Tuesday that it sold 37 million iPhones in its fiscal first quarter, the first period after the death of CEO and co-founder Steve Jobs. That was coupled with a big jump in iPad sales to 15.4 million, and a more modest increase in Mac sales.
Apple’s net income leapt 118 percent from the same quarter a year earlier. Revenue soared 73 percent. Both results blew the doors off Wall Street’s expectations.
Among the other companies making big moves after announcing earnings:
— US Airways Group Inc. jumped 18 percent and Delta Air Lines Inc. rose 6.6 percent. Both carriers reported earnings that were far better than Wall Street analysts expected. The airlines raised fares during the fourth quarter while keeping costs under control. Delta also cut the number of flights it makes to keep pace with demand.
— WellPoint Inc., the nation’s largest health care insurer based on enrollment, fell 4.9 percent. The company’s fourth-quarter earnings dropped 39 percent, far more than analysts had expected. The Indianapolis company’s full-year forecast also fell short of Wall Street’s forecasts. Medical claims, its largest expense, rose nearly 10 percent in the quarter.
Follow Daniel Wagner at www.twitter.com/wagnerreports.