NEW YORK – U.S. stocks fluctuated after the Federal Reserve decided to press on with $85 billion in monthly bond purchases, even as it sees “growing underlying strength in the economy.”
The S&P 500 fell 0.1 percent to 1,769.48 at 2:06 p.m. in New York. The benchmark index added 0.6 percent yesterday to set a record for a third straight day.
“Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market condition since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the Federal Open Market Committee said.
The central bank left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.
A report today indicated the cost of living in the U.S. rose as projected in September as fuel charges climbed, capping the smallest year-to-year gain in five months. Inflation has been running below the Fed’s 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus.
The central bank’s stimulus helped propel the S&P 500 higher by more than 160 percent from a 12-year low in 2009. The index has jumped 24 percent this year and is headed for its best annual gain since 2003.
While the rally has lifted equity valuations to a four-year high, with the index trading at 16 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.
The S&P 500 has surged 5.1 percent in October, heading for the biggest monthly gain in two years, as lawmakers ended a 16- day government shutdown and agreed to extend the U.S. borrowing authority, avoiding a possible debt default.