Fed spurs stocks higher, but some worry

Associated Press
In this Thursday, Sept. 13, 2012 photo, a pair of traders work in their booth on the floor of the New York Stock Exchange, in New York.  Economic data is coming out of Washington on Friday on inflation, retail sales, industrial production and business inventories. (AP Photo/Richard Drew)
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In this Thursday, Sept. 13, 2012 photo, a pair of traders work in their booth on the floor of the New York Stock Exchange, in New York. Economic data is coming out of Washington on Friday on inflation, retail sales, industrial production and business inventories. (AP Photo/Richard Drew)

NEW YORK (AP) — Stocks climbed again Friday, one day after the Federal Reserve announced big plans to stimulate the economy, even as some investors worried about how effective the help would be and how long the market gains would last.

The Dow Jones industrial average climbed above 13,600 for the first time since the start of the Great Recession in December 2007, and the Russell 2000 index of smaller companies hit an all-time high.

Markets rallied around the world in places where traders were reacting for the first time to the Fed announcement. Stocks climbed more than 2 percent in India and France and almost 2 percent in Japan and Germany.

Apple, the most valuable company in American history, blew through its own all-time high and neared $700 per share as it started taking orders for the iPhone 5.

The Dow rose as much as 113 points before pulling back. At mid-afternoon, it was up 36 points, about 0.3 percent, to 13,576. That put it less than 600 points away from its all-time high, 14,164 on Oct. 9, 2007.

The gains in the Standard & Poor's 500 and the Nasdaq composite index were larger in proportion. Both indexes include Apple, while the Dow doesn't — and benefited from Apple's big gain.

The S&P 500 was up six to 1,466. The Nasdaq composite rose 29 points to 3,185.

The Fed said Thursday it would buy $40 billion a month in mortgage bonds to stimulate the economy for as long as necessary, and even after the recovery gains strength. It pledged to hold short-term interest rates at super-low levels into 2015.

A day later, plenty of investors were still worried. They bought stock even as they worried that the Fed can't do much to fix the economy and bring down the high unemployment rate.

Tyler Vernon, chief investment officer of Biltmore Capital in Princeton, N.J., wanted to capitalize on the market euphoria while he could. He thinks it won't last, though.

That the Fed is still taking such aggressive steps to boost the economy, four years after the financial crisis, doesn't give him much comfort. The Fed, he said, is "like the morphine being pumped into the patient. It keeps the patient walking and talking."

There are also questions about the effectiveness of the Fed action. Short-term interest rates have been near zero for years, noted Jeff Sica, president and chief investment officer of SICA Wealth Management in Morristown, N.J.

"How many times can you refinance your house?" Sica said.

To be sure, corporate profits are high, and stocks are relatively cheap by historical standards when compared to earnings.

The psychological effect of the Fed's action is important, too: If the Fed weren't buttressing the stock market and the Dow were thousands of points lower, consumers would feel less wealthy and cut spending.

But data out Friday underscored the tenuous state of the economy. U.S. industrial production fell in August by the largest amount in more than three years, the Fed reported.

High gas prices drove up consumer prices in August by the most in three years, the Labor Department said. The national average for a gallon of gas is around $3.87, a hardship for many families.

Dwight Johnston, chief economist of the California and Nevada Credit Union Leagues, expects any stock market gains to be short-lived — just like they were after other central bank moves, he said.

"The definition of insanity is doing the same thing over and over again and expecting different results," Johnston said. "I think this may qualify."

Among the stocks making notable moves:

— The Children's Place clothing store was up $2.03, or 3.5 percent, to $60.85 after a Citi analyst opened coverage of the company with a "buy" rating.

— The Cracker Barrel restaurant chain slipped $2.01, or 3 percent, to $64.16 after a KeyBanc analyst cut his rating to "hold" from "buy," citing high food costs.

— Staples was up 33 cents, or 2.8 percent, to $12.29 after Fortune magazine, citing anonymous sources, reported that private-equity firms are considering buying the office-supply company.

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