MarketView for January 25

Summary

Unexpectedly higher earnings from Apple, and a promise from the Federal Reserve to keep rock-bottom interest rates for at least two more years, sent share prices marketedly higher on Wednesday. Apple led the Nasdaq to a 1 percent gain. Shares of the maker of iPhones and iPads surged to a record, making it the most valuable company in terms of market capitalization. Apple ended theday up 6.2 percent at $446.66.

Buying activity also increased as a result of the Federal Reserve indicating that it would keep interest rates near zero at least through 2014, which was longer than the Street had anticipated. The actions were taken as a sign of the central bank's commitment to add life to a sluggish economic recovery.

The Fed also took an historic step of setting an inflation target of 2 percent, which brings the U.S. central bank in line with many of the world's other central banks that use an explicit benchmark for policy.

Apple was a standout in what has otherwise been a fairly lackluster earnings season. So far, 57 percent of companies reporting have beaten forecasts, while at this stage in past earnings seasons, the beat rate averaged 70 percent.

Apple shares hit an all-time high of $454.45 on results issued after Tuesday's market close that sailed past expectations. The move higher pushed Apple's market capitalization above that of Exxon Mobil, making it the largest publicly held domestic corporation.

In other earnings news, video rental company Netflix reported results that outpaced Wall Street's expectations, sending shares up about 13 percent to $107.28 in extended trade.

Earlier in regular trading session, both United Technologies and Rockwell Automation saw their share prices fall after slightly missing revenue forecasts. United was down 0.2 percent at $77.65, while Rockwell ended the day down 2.9 percent at $79.42.

Textron rose 14.6 percent to $24.76 after it increased its 2012 profit forecast. Corning fell 10.7 percent to close at $13.05 as manufacturers cut back on the production of big-screen televisions that use the company's specialty glass.

Greece was hoping to reach a deal with its bondholders as talks were set to resume this week to avoid a messy default. Such an outcome could threaten the stability of other debt-laden members of the euro zone as well as the global economy.

About 7.9 billion shares changed hands on the three major exchanges, a number that was higher than this year's 6.7 billion share average.

The Fed May Have More in Store

Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank was ready to offer the economy additional stimulus after it announced it would likely keep interest rates near zero until at least late 2014. The Fed also took the historic step of adopting an explicit inflation target, though Bernanke took pains to stress that officials would be flexible about reining in price growth when unemployment was too high.

The late 2014 timeframe for the first rate hike was considerably later than investors had expected and some 18 months later than the Fed had suggested last year, and the announcement prompted a rally in U.S. government bonds. Speaking at a news conference after a two-day policy meeting, Bernanke was cautious about recent improvements in the U.S. economy, and he left the door open to further Fed bond purchases.

"I don't think we're ready to declare that we've entered a new, stronger phase at this point," Bernanke said. "If the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then ... the logic of our framework says we should be looking for ways to do more."

In response to the deepest recession in generations, the Fed reduced the overnight federal funds rate to near zero in December 2008. It has also more than tripled the size of its balance sheet to around $2.9 trillion through two separate bond purchase programs.

The policy is credited with preventing an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times. Many Fed watchers expected a further round of bond buying, likely focusing on mortgage debt.

Fed officials agreed that a goal of 2 percent inflation would be in keeping with their congressional mandate of price stability. By their favorite measure, core inflation is running at about 1.7 percent. They declined to announce a target for unemployment, stating that the job market was often influenced by forces beyond their control.

In another key shift touted as part of an effort toward greater transparency, the Fed for the first time published policymakers' projections for the appropriate path of the benchmark overnight federal funds rate. These showed a wide range of views, from the three of 17 policymakers who said they thought rates should rise this year to two who want to hold off on any increase until 2016. Still, the largest concentration of estimates - five of 17 - was around 2014.

In its announcement, the Fed repeated its view that the economy faced "significant downside risks" - an expression that has become code for the threat Europe's debt crisis poses to the United States.

In economic forecasts accompanying the rate projections, the Fed pointed to somewhat weaker economic growth this year and next, compared with estimates published in November. Meanwhile, the unemployment rate, which hit 8.5 percent in December, was seen coming down only slowly.

Economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014," the central bank said. After every previous policy meeting dating to August, the Fed had said rates were not likely to rise until mid-2013.

Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk who rotated into a voting panel seat this year, dissented against the policy decision, preferring to omit the late-2014 date from the Fed's post-meeting statement.

The central bank appeared more sanguine on inflation than it had after its last meeting in December, saying prices were likely to run close to or just below its target. The statement dropped a reference to the Fed monitoring inflation and inflation expectations.

Aside from the 2014 rate pledge, the statement hewed closely to the Fed's last policy pronouncement in mid-December. It described the unemployment rate as still elevated and, in a slight shift, acknowledged a slowing in business investment.