U.S. stock prices and Treasuries were both on the upswing today, following Lawrence H. Summers’ withdrawal from contention to become the next Chairman of the Federal Reserve, and a new agreement between the United States and Russia to request that Syria destroy all chemical weapons by the middle of next year.
As of 2:33 p.m., the Standard & Poor’s 500 Index moved up by 0.6 percent to 1,697.43, following an earlier gain of more than 1 percent. The Dow Jones Industrial Average ticked up by 0.8 percent, or 115.42 points to 15,491.48 as of the same time. Yields on ten-year Treasury bonds, on the other hand, were down by three basis points to 2.87 percent, while the U.S. dollar eased against its other Group of Ten currencies. Notable gainers included Boeing, Co. (NYSE: BA), which improved by 4 percent following an adjusted price target from Sterne Agee, while today’s losers included Apple, Inc. (NASDAQ: AAPL), which has lost 2.9 percent so far, as the company’s stock price continues to struggle in the aftermath of last week’s iPhone 5S introduction.
Mr. Summers had taken his name out of consideration for Fed chairmanship right before a scheduled two-day meeting, which will kick off tomorrow. This meeting will be key for investors and market watchers alike, as the Fed is believed to discuss its plans for a potential scaling down of its bond-buying economic stimulus, known colloquially as “QE3”, or the third round of quantitative easing. Speculation suggested that Mr. Summers would be stricter in terms of policies than rival Janet L. Yellen, his primary rival as a potential replacement for current Chairman Ben S. Bernanke.
In an interview with Bloomberg, Bingham, Osborn & Scarborough principal Colleen Supran said that she does not believe the market was aware of the type of chairman Mr. Summers would be. “Having him out of the running makes things a lot more certain,” posited Ms. Supran. “This tapering announcement that’s expected for Wednesday seems to be accepted by the markets.” She added that any tapering from the Fed may likely be “modest.” Aside from Mr. Summers and Mrs. Yellen, President Barack Obama’s list of potential Fed Chairman candidates includes former Fed vice chairman Donald L. Kohn.
The Fed is expected by experts to start tapering its $85 billion bond-buying stimulus by about $10 billion starting this week, though it remains unsure just how that would impact stock prices. The bond-buying stimulus, aside from helping a modest economic recovery, has spurred the S&P 500 to rally by over 150 percent since its low point in March 2009. Had Mr. Summers been named Fed chairman, economists believe that he could make the market more risky, but it is believed that Mrs. Yellen’s policies will be similar to those currently in force under Mr. Bernanke.