Stocks rose on Wednesday after the U.S. Federal Reserve pledged to keep interest rates near zero and stock futures signaled more gains ahead after President Barack Obama struck a conciliatory tone on banks in his State of the Union speech.
Stock index futures shot up in late after-hours trading as Obama pushed job creation to the top of his agenda to bring down high unemployment, proposing the use of $30 billion of bank bailout repayments to boost lending to small businesses.
Analysts said investors were relieved that Obama's speech did not slam banks and Wall Street anew after days of heightened unease about restrictions on bank risk-taking that Obama proposed last week, which helped fuel a global market sell-off.
Financial shares were poised to be among the standouts heading into Thursday's session.
In my opinion he articulated the crowning achievement of his administration so far, which is the stabilization of our banking system. I think he articulated that very well and why that's important and that this country's banking system is no longer on the brink, said Haag Sherman, co-founder and chief investment officer of Salient Partners, an investment firm in Houston.
As it relates to pushing stock futures higher tomorrow, I think that maybe there's some degree of relief that there weren't more radical proposals that came out of this State of the Union address. It was largely conciliatory and somewhat balanced.
S&P 500 futures rose about 0.7 percent or 8 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures gained 0.5 percent or 55 points, and Nasdaq 100 futures added 0.6 percent or 10.50 points.
Obama also promised not to abandon his struggling overhaul of the healthcare system, making it likely that healthcare stocks would also be in the spotlight on Thursday. The backdrop for the speech was the Democrats' loss of the 60-vote hold in the Senate after a Republican upset victory in Massachusetts last week.
Ahead of Obama's speech, U.S. stocks had garnered a late surge as technology shares advanced after Apple Inc , a technology bellwether, unveiled the iPad, its new portable computer.
Market analysts said the Fed's rate decision was not surprising, but the somewhat more optimistic tone of its accompanying statement shifted sentiment after a wave of unexpected news from Washington the past two weeks caused the stock market to buckle.
The Fed offered a more guardedly upbeat view of the U.S. economy than previously, and appeared to put more faith in the sustainability of a nascent economic rebound.
The market rallied because there wasn't anything overtly negative that could be taken from the Fed statement, said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
The Dow Jones industrial average <.DJI> gained 41.87 points, or 0.41 percent, to end at 10,236.16. The Standard & Poor's 500 Index <.SPX> rose 5.33 points, or 0.49 percent, to 1,097.50. The Nasdaq Composite Index <.IXIC> climbed 17.68 points, or 0.80 percent, to 2,221.41.
After the closing bell, Qualcomm Inc tumbled 8.9 percent to $43.00 after the biggest maker of cellphone chips cut its revenue estimate for the first quarter and current fiscal year, citing a slow economic recovery.
During the regular session, Apple's shares rose 0.9 percent to $207.88, reversing course from a drop of more than 3 percent earlier in the day after the company unveiled its iPad tablet computer.
The Nasdaq also got a boost from Gilead Sciences Inc , which jumped 7.1 percent to $48.04 after the biotech company posted fourth-quarter earnings that topped Wall Street's estimates and forecast a sales increase of about 10 percent for 2010. The NYSE Arca Biotech index <.BTK> gained 1.3 percent.
Boeing was the Dow's top advancer, up 7.3 percent at $61.93, after the world's second-largest aircraft manufacturer reported stronger-than-expected quarterly results and forecast a profitable 2010.
But Dow components Caterpillar and United Technologies Inc slipped after giving cautious forecasts.
Caterpillar's shares slid 4.3 percent to $53.44, while United Tech's stock lost 1.3 percent to $67.61.
Volume was light on the New York Stock Exchange, with about 1.3 billion shares changing hands, below last year's estimated daily average of 2.18 billion. On the Nasdaq, about 2.49 billion shares traded, above last year's daily average of 1.63 billion.
Advancing stocks just barely outnumbered declining ones on the New York Stock Exchange, with 1,517 shares rising and 1,515 falling.
On the Nasdaq, the winner's advantage was more pronounced, with about 16 stocks rising for every 11 that fell.
(Additional reporting by Chuck Mikolajczak and Caroline Valetkevitch)
(Reporting by Ellis Mnyandu; Editing by Kim Coghill)