By Steve Rothwell
NEW YORK — A pledge from the Federal Reserve to remain “patient” when deciding when to lift interest rates gave the stock market its biggest gain in more than a year.
Stocks rose from the open on Wednesday, led by gains for the energy sector, as oil prices showed signs of stabilizing after their big slump in recent months. The market’s gains were extended after Fed policymakers released a statement following the end of its most recent policy meeting.
A near six-year bull run for the stock market has come against a background of exceptional stimulus from the Fed. At the start of the month investors had worried that signs of strengthening hiring would lead the Fed to bring forward the start of rate increases.
“The Fed is going to be our friend for a very long time,” said Burt White, chief investment officer for LPL Financial. “Growth continues to be good and corporate America is healthy. If you mix all that together it translates to rising stock prices.”
The Standard Poor’s 500 index (^GPSC) rose 40.15 points, or 2.04 percent, to 2,012.89. That was the biggest gain for the index since October 2013 The Dow Jones industrial average (^DJI) rose 288 points, or 1.7 percent, to 17,356.87. The Nasdaq composite climbed 96.48 points, or 2.1 percent, to 4,644.31.
Stock investors have had a wild ride in the final quarter of the year. The market plunged at the start of October on concerns that global growth was slowing. Then it rebounded and surged to record levels at the start of December, before falling sharply last week as the price of oil collapsed, dragging down energy stocks.
On Wednesday, energy stocks led gains for the SP 500 index as the price of oil steadied. Stocks in the sector jumped 4.2 percent, reducing their losses for the year to 13 percent. The price of U.S. oil rose Wednesday after the Energy Department reported a decline in inventories, a turnaround from a Tuesday report of increased inventories from the American Petroleum Institute, an industry group.
Benchmark U.S. crude rose 54 cents to close at $56.47 a barrel in New York. Brent crude for February delivery, a benchmark for international oils used by many U.S. refineries, rose $1.17 to close at $61.18 a barrel in London. The January Brent contract expired Tuesday at $59.86.
Trade With Cuba
Stocks that were linked to Cuba surged after President Barack Obama announced the re-establishment of diplomatic relations on Wednesday and declared an end to America’s “outdated approach” to the communist island in a historic shift aimed at ending a half-century of Cold War enmity. Copa Airlines (CPA), a Panama City-based carrier, and one of the most successful airlines in Latin America, jumped. Its stock rose $6.36, or 7.2 percent, to $94.48 on the news. The Herzfeld Caribbean Basin Fund, a closed-end fund designed to take advantage of greater trade with Cuba, surged $1.97, or 28.9 percent, to $8.78.
Among individual names, FedEx (FDX) was one of the biggest losers in early trading after in the shipping company reported earnings that fell short of Wall Street’s expectations. The company said a jump in plane maintenance costs blunted gains the company reaped from managing costs, lowering its pension expense and growing its export package revenue. The company’s stock dropped $6.48, or 3.7 percent, to $167.78.
Russia also remained in focus on concerns about the impact of the recent slide in the ruble. The currency has lost more than 50 percent of its value this year. After falling again early Wednesday, the ruble recovered and was 12 percent higher at 61.66 rubles to the dollar.
The currency recovered some of its losses Wednesday after Russian authorities indicated that they would sell foreign currency to relieve pressure on the ruble. The Russian currency has suffered in the wake of sliding oil prices and sanctions imposed over Russia’s involvement in Ukraine’s crisis.
In government bond trading, prices fell. The yield on the 10-year benchmark Treasury note, which rises when prices fall, climbed to 2.13 percent from 2.08 percent a day earlier.
The price of gold was little changed from Tuesday at $1,194.50 an ounce. Silver rose 18 cents to $15.93 an ounce and copper rose a penny to $2.87 a pound.
What to Watch Thursday:
- The Labor Department releases weekly jobless claims at 8:30 a.m. Eastern time.
- At 10 a.m., Freddie Mac releases weekly mortgage rates, and the Conference Board releases leading indicators for November.
These selected companies are scheduled to release quarterly financial results:
- Accenture (ACN)
- Cintas (CTAS)
- ConAgra Foods (CAG)
- Nike (NKE)
- Pier 1 Imports (PIR)
- Red Hat (RHT)
- Rite Aid (RAD)
- Winnebago Industries (WGO)
For 2014, you’re allowed to contribute up to $17,500 to your 401(k). (If you’re 50 and over, that limit increases to $23,000.) This is the maximum you’re able to save per year and still defer paying income tax on that money.
Since 401(k) contributions must be made through payroll deductions, talk to your company’s payroll department about adjusting your December contribution or adding a lump-sum amount from your holiday bonus when you receive it. Also, chat with your human resource department to see if it will let you retroactively earmark contributions made prior to April 15, 2015 for the 2014 tax year.
Do you have a flexible spending account, or FSA, at work? Check the detail of your company’s policy; many are “use it or lose it,” meaning if you don’t use the full amount in your FSA by year’s end, that money will not roll over.
New federal laws permit employers to let their workers roll over a maximum of $500, but it’s the employers choice whether or not to allow this rollover. Also, some employers give their workers a grace period until March of the following year to use the prior year funds, while other employers require that the funds are used by Dec 31. Check with your HR department to learn your employers’ rules.
Remember that FSA funds can be used for a lot more than just prescriptions and co-pays. If you have money you need to spend before it’s gone, you may also be able to use it for things like dental work, glasses or contact lenses, and even some qualified over-the-counter medicine and supplies.
Secure some additional tax deductions for 2014 by donating to a charitable cause. As long as you itemize your donations, you can claim everything from cash donations to goods to used vehicle donations. You can even give some of your stock to charity, thus avoiding capital gains tax.
Just be sure to get a signed and dated receipt from the charity, noting the amount of your contribution — especially if you’re donating goods instead of cash. As an added precaution, take photographs of any high-value donations (over $250).
You can give up to $14,000 to individuals per year without needing to file a gift tax return. If you’re married, you and your spouse can each bequeath gifts of $14,000 to an individual without triggering a taxable event. If you decide to give a major financial gift to your children, talk to your kids first about strong money-management skills. Here’s a free guide to help to talk to your kids about money.
Giving a little bit each year can also help reduce your overall estate tax burden (although the estate tax exemption is $5.34 million in 2014, which means few taxpayers will need to worry about this).