U.S. stocks rose on Monday after former Treasury Secretary Lawrence Summers’ withdrew as a candidate for Federal Reserve chairman, removing market uncertainty about a long confirmation process that already had plenty of opposition.
The move means a path for the next Fed chief is likely to be easier, and it also has added to expectations that the Fed will continue its current dovish path. Summers was thought to be a bit more likely to remove stimulus more quickly.
Summers’ surprise decision on Sunday came two days before the U.S. central bank will meet to decide when and by how much to scale back its bond purchases, or quantitative easing, from the current pace of $85 billion a month.
Investors flocked to housing-related stocks on bets of downward pressure on mortgage rates. The PHLX housing index .HGX jumped 2.9 percent. Among individual stocks, D.R. Horton jumped 4.1 percent to $19.89.
Another strong sector was semiconductors as the PHLX semiconductor index .SOX jumped more than 1 percent to its highest level since October 2007. Advanced Micro Devices Inc jumped 1.3 percent to $3.88.
Summers’ "passing as a contender for the top role has left in its wake a significant risk-on rally," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
The Dow Jones industrial average .DJI was up 142.38 points, or 0.93 percent, at 15,518.44. The Standard & Poor’s 500 Index .SPX was up 13.57 points, or 0.80 percent, at 1,701.56. The Nasdaq Composite Index .IXIC was up 21.32 points, or 0.57 percent, at 3,743.51.
Fed Vice Chairwoman Janet Yellen is now the front-runner to succeed Ben Bernanke, whose second four-year term will end in January. Yellen is expected to continue the Fed’s likely slow, cautious approach to reduce its current bond purchase stimulus.
The day’s gains come after the Dow Jones industrial average .DJI on Friday registered its best weekly gain since January, though trading was subdued before the Fed’s meeting, which had been expected to result in the start of tapering.
Of the two leading candidates for the Fed chairmanship, Summers was regarded as more eager to scale back the Fed’s $85 million a month bond buying. Janet Yellen, the Fed’s vice chairwoman and the other leading candidate to succeed Fed chief Ben Bernanke. Yellen is perceived as favoring a more gradual easing of stimulus and emphasizing the need to lower the unemployment rate.
Further whetting risk appetite, the United States reached a deal with Assad’s ally, Russia, on chemical weapons that could avert U.S. strikes on Syria.
In the economy, industrial production rose in August as a bounce back in motor vehicle assembly lifted manufacturing output, a hopeful sign for the economy after growth got off to a slow start in the third quarter.
A separate report for September showed the pace of growth in New York state’s manufacturing sector unexpectedly slowed this month, but firms’ outlook brightened.
"It’s a mixed bag across all sectors. The economy continues to recover at a moderate pace, not especially strong. It’s not weak enough to prevent a tapering this week," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
