U.S. stocks rallied broadly to fresh 13-month highs on Monday after Federal Reserve Chairman Ben Bernanke reinforced expectations that interest rates would stay low to spur growth.
In a speech before the Economic Club of New York, Bernanke said the recovery would not be as robust as previously hoped, and rising unemployment and tight bank lending were significant headwinds.
He repeated that the Fed was likely to keep interest rates exceptionally low for an extended period, a pledge that drove the U.S. dollar lower and drove investors to snap up shares of natural resource companies as prices of global commodities -- from gold to wheat -- shot higher.
The S&P materials <.GSPM> and energy <.GSPE> indexes each climbed nearly 3 percent. Individual stock standouts included Exxon Mobil Corp
The overriding message from Bernanke is that interest rates will stay low and remain low for the near to medium term. It seems that the market likes that, said Dennis Cajigas, senior market strategist at Lind-Waldock, a retail brokerage firm, in Chicago.
Investors essentially are borrowing against low rates in the dollar and putting that money in areas that they feel will react well against inflation, such as crude oil, energy, gold, commodities, stocks because the expected return should be higher over time.
The Dow Jones industrial average <.DJI> climbed 158.56 points, or 1.54 percent, to 10,429.03. The Standard & Poor's 500 Index <.SPX> leapt 19.82 points, or 1.81 percent, to 1,113.30. The Nasdaq Composite Index <.IXIC> gained 37.00 points, or 1.71 percent, to 2,204.88.
The benchmark S&P 500 is now up 64.5 percent since the 12-year closing low of March 9 and on Monday it was on track to close above the psychologically important 1,100 level for the first time since October 2008.
Shares of Caterpillar Inc
Shares of AK Steel Holding Corp
Even though Bernanke made a rare statement on foreign exchange markets, saying the Fed was watching the U.S. dollar closely, the greenback found very little lasting reprieve.
The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation forum in Singapore.
Bernanke, commenting on the dollar's decline, said the Fed is attentive to changes in the U.S. currency and the Fed's mandate will help ensure the greenback remains strong.
If you take away stimulus, this economy falls apart. He knows it. He's boxed in here, he can't raise rates. It's impossible, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. So what do we do? We continue to buy equities because that's what the trade is.
(Additional reporting by Rodrigo Campos; Editing by Kenneth Barry)