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June 18, 2013

Investors guess Fed's actions, push stocks higher

NEW YORK — Investors on Wall Street are playing a guessing game with the Federal Reserve.

Yesterday, they guessed that the central bank will continue trying to prop up the economy and sent stocks higher.

The major stock indexes all rose about 1 percent in early trading and stayed there for most of the day, before dipping slightly in the afternoon. The Standard & Poor’s 500 index rose 12.31 points, or 0.8 percent, to 1,639.04. It had been up as much as 20 points.

The market’s gains were broad. Telecommunications was the only one of the 10 industry sectors in the S&P 500 to post a loss. Netflix did better than any other stock in the S&P 500 after announcing that it will run original TV series from Dreamworks Animation.

Overall, though, there were few big company announcements or economic reports. Trading was light, the day more a holding pattern than a referendum. Investors will have to keep guessing about the Fed’s future actions until tomorrow, when it will release a policy statement shortly after midday.

Investors sent stocks up yesterday because they think Fed policymakers will determine that the economy isn’t recovering fast enough. That might seem like a contradiction, but a still-weak economy would influence the Fed to continue its programs designed to stimulate the economy: keeping interest rates low to encourage borrowing, and buying bonds to push investors into stocks.

Not everyone thinks that’s a logical pattern.

Doug Lockwood, branch president of Hefty Wealth Partners, a financial advisory firm in Auburn, Ind., said it’s not rational for the stock market to regard bad news as good, and to be yanked back and forth more by the actions of a central bank than the underlying fundamentals of the economy.

“I think the market’s a little hooked on a drug here,” Lockwood said. “You take drugs, you feel better, but it’s short-lived. Printing of money should never be considered a great thing for the economy.”

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