Stocks closed broadly higher on Tuesday after minutes from the Federal Reserve's September policy meeting encouraged investors hoping for further interest rate cuts.
"I don't think there is any question it's a good thing for stocks, it just reinforces the view from the investor's perspective that the Fed's there to save the day if necessary," said Michael Chren, portfolio manager at Allegiant Asset Management. "The market looks fairly valued so it generally climbs a wall of worry and we would expect stock markets to move higher."
Both the Dow Jones Industrial Average and the S&P 500 closed at record highs, while the Nasdaq Composite also saw strong gains.
Minutes from the September meeting of the Federal Open Market Committee showed that committee members unanimously voted to cut rates.
"Without such policy action, members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment," the Fed said. "With economic growth likely to run below its potential for a while and with incoming inflation data to the favorable side, the easing of policy seemed unlikely to affect adversely the outlook for inflation."
Investors were also focusing on the third-quarter earnings season, which unofficially kicks off later today when basic materials bellwether Alcoa reports third-quarter earnings.
"Most people think we're going to beat, the earnings have been good so far and they expect another good quarter," said Todd Leone, head of listed trading at Cowen & Co. "But we'll see if subprime problems or pullbacks in consumer spending play a part in earnings, but it seems that the consumer spends no matter so I think we'll be OK."
"The assumption is that estimates have been brought down so much for the third quarter that the market would easily beat them," said Peter Dunay, investment strategist at Leeb Capital Management, a New York fund.
But not all analysts were as sanguine regarding third-quarter earnings. Thomson Financial revised consensus forecasts again on Tuesday, saying analysts now expect third-quarter earnings growth at an anemic 0.2%. The revised estimate is down sharply from July, when analysts collectively forecast year-over-year earnings growth of 6.2% in the third quarter.
"I think there are some concerns about what earnings are going to show and some skepticism about jobs," said Kevin Kerr, senior analyst for Research Trader Alert. "There is more bad news baked in in the coming six months and that's putting some pressure on the market."
"The way earnings work, the first week it doesn't move (the markets), it's more at the tail end when they look at earnings as a group," said Tom Busby, CEO at the DayTrading Institute in Mobile, Ala. "Right now it's too early to tell."
Restaurant operator Yum! Brands lifted reported strong earnings, raised guidance and announced plans to buy back up to $4 billion of its stock.
Technology stocks, which have led the market's recovery from its late-summer sell-off, will again be in the spotlight after Banc of America Securities raised its price targets on
Google and Amazon.com.
Sprint Nextel announced the departure of its CEO and that yearly operating profit and revenue will likely be below previous forecasts.
Student-loan provider Sallie Mae on Monday told members of the consortium that agreed to take over the company that it is not interested in accepting a lower offer than the original $25 billion and would prefer a breakup fee of $900 million.
U.S. crude oil futures ended higher, bouncing back on technical support and on news that Europe's products inventories slipped in September. After trading in a wide range of $78.39 to $81.10, light sweet crude futures closed at $80.26 a barrel on the New York Mercantile Exchange, snapping a two-day losing streak.
U.S. Treasurys slipped slightly on Tuesday after a Federal Reserve official said that the outlook for the economy was not darkening as some had feared, though financial conditions remained fragile.
William Poole, the president of the St. Louis Fed, said the recent monthly jobs data showed that the outlook for the U.S. economy was not worsening as some had feared, but conditions remain fragile.
A group of funds led by JPMorgan Chase agreed to buy U.K. water company Southern Water for $2.7 billion.