An Upbeat Fed Sends Stocks Higher


The all-important Federal Reserve meeting has concluded, and the central bank had generally positive things to say about the economy. It sees unemployment falling to between 7.3% and 7.5% this year, which is down from 7.7% in February. The Fed also projects growth of 1.3% to 1.7% for the economy as a whole. It will continue its bond-buying programs and won't raise rates until unemployment reaches 6.5% or inflation reaches 2.5%. Add it all up, and investors are cheering the news, pushing the Dow Jones Industrial Average 0.42% higher and the S&P 500 0.68% higher near the end of trading.

All but four of the 30 Dow components moved higher today, led by a strong reaction from financial-services companies American Express and Bank of America , which gained 1.3% and 0.9%, respectively. The two things financial services need are a growing economy and stable banking policy, which is what they'll get for the next few years, by the looks of it.

Merck is up 1.2% after announcing the sale of potential Parkinson's treatments to Cerecor. The company is looking into a variety of drugs to treat the disease, and this will add to the list of candidates for clinical development. Exact terms of the deal weren't disclosed, but Merck will be eligible for milestone payments and royalties if any of its treatments are approved.

On the flip side, Caterpillar is lagging the Dow by a wide margin, falling 1.6% after reporting sales figures. During the most recent three-month period, dealer sales fell 13%, compared with a 4% drop in the January period. This means February was an awful month, resulting in a 26% decline in sales in Asia-Pacific and 12% in North America. Infrastructure and mining spending just isn't what it used to be, and Caterpillar is caught with too much inventory and tough comparisons. Now is not the time to be jumping onto this bandwagon.

Nevertheless, Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it some solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in The Motley Fool's brand-new report. Just click here to access it now.

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Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends American Express. The Motley Fool owns shares of Bank of America. 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 Motley Fool has a disclosure policy.

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