— U.S. stocks ended higher on Tuesday, with the Dow Jones Industrial Average and the S&P 500 rising to record closes after an upbeat report on durable-goods orders.
In a good agreement with the forecast,
In a holiday-shortened session, the Dow DJIA +0.39% recorded its 49th record close this year after rising for five consecutive days. The blue-chip average rose 62.94 points, or 0.4%, to 16,357.55. The S&P 500 SPX +0.29% also reached a record level after three consecutive days of gains. The benchmark index closed 5.33 points higher, or 0.3%, to 1,833.32.
The technology-heavy Nasdaq Composite COMP +0.16% closed up 6.51 points, or 0.2%, at 4,155.42, its highest level since September 2000.
2014 will not be 1994 all over again for bonds. Now that the Fed has finally gotten the tapering out of the way, investors can get back to focusing on where long-term interest rates should go in a somewhat more normal market environment.
The good news is that few are predicting a massive spike in bond yields like what happened in 1994, when the Fed started to jack up interest rates in response to a strengthening economy.
Yields on the 10-year Treasury note have already surged from a low of 1.6% in May to nearly 3% this year. They won't go much higher as long as the Fed sticks with a slow and steady taper, and as long as the economy does not start to overheat and show signs of inflation.
Why stocks soared on the taper
The mere fact that investors can stop wondering when the taper will happen is a huge positive. The endless Hamlet-esque 'to taper or not to taper' speculation was getting ridiculous.
"Every two minutes I seemed to get an email about views on Fed tapering. There is this obsession with the short-term. The big point is that the Fed has to taper because the economy is improving," said Marty Sass, chairman and CEO of investment management firm MD Sass.
And the Fed's decision to just trim its bond purchases from $85 billion a month to $75 billion sends a signal that the central bank realizes it can avoid creating another market taper tantrum with a gradual unwinding of quantitative easing.