US market jumps on Fed’s optimistic economic outlook

The US markets surged on Tuesday, with the Nasdaq Composite finishing above 3,000 for the first time in 11 years, after the Federal Reserve raised its assessment of the economy and J.P. Morgan Chase & Co. hiked its dividend coupled with retail sales figures which were at five months high. The Federal Reserve policy makers raised their assessment of the economy as the labor market gathers strength and refrained from new actions to lower borrowing costs. The unemployment rate has declined notably in recent months but remains elevated, the Federal Open Market Committee stated at the conclusion of a meeting in Washington. It also stated that strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The Fed expects moderate economic growth and predicted the unemployment rate will decline gradually. Moreover, policy makers also stated they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist. By the end of 2014, the FOMC expects a jobless rate of 6.7 percent to 7.6 percent, still above their goal for maximum employment of 5.2 percent to 6 percent.

Moreover, the retail sales climbed the fastest in five months in February, as rising gasoline prices weren’t enough to choke off US consumers’ demand for cars, clothing and other goods, government data showed. The Commerce Department stated sales rose a seasonally adjusted 1.1% to $407.8 billion last month, with January’s retail sales revised higher to show a 0.6% advance instead of the 0.4% initially reported. Besides, Ally Financial Inc., Citigroup Inc., MetLife Inc. and SunTrust Banks Inc. failed to have enough capital under a stress test conducted on 19 big banks, the Federal Reserve stated. The test, designed to assess whether reserves were necessary to withstand another crisis like the credit crunch of 2008, showed Ally, Citi and SunTrust each had less than a 5% of capital set aside under a measure called TIER 1 capital ratio, according to a Fed statement. However, 15 other big banks passed the stressed scenario and many announced plans to hike dividends.

The Euro-zone finance ministers approved a second bailout package for Greece in a meeting in Brussels yesterday. The country had completed a debt swap deal with its private creditors last week, a prerequisite for receiving the next tranche of aid worth €130 billion from the troika. However, Greece awaits the decision of the International Monetary Fund before it gets the first installment of the second bailout package. Separately, the euro area finance ministers urged Spain to take deeper fiscal cuts to bring the deficit below 3% of GDP by 2013.

The Dow Jones Industrial Average closed higher by 217.97 points, or 1.68 percent, at 13,177.70. The S&P 500 gained 24.86 points, or 1.81 percent, at 1,395.95, while the Nasdaq was up by 56.22 points, or 1.88 percent, at 3,039.88.

Indian ADRs closed in green on Tuesday, Infosys Technologies was up 1.36%, ICICI Bank was up 1.06%, HDFC Bank was up 0.91%, Tata Motors was up 0.84% and Sterlite Industries was up by 0.43%.