Preferred stocks gain as Fed hints at December interest rate lift-off; Southern notes rise as profit grows

By Stephanie N. Rotondo

Seattle, Oct. 28 – The preferred stock market finished higher Wednesday after the Federal Reserve said it would hold interest rates where they are – at least for now.

The market was “creeping up” early in the session ahead of the Fed’s statement, a trader reported.

The Wells Fargo Hybrid and Preferred Securities Index closed up 15 basis points. The index was up 6 bps at mid-morning.

“Everybody’s waiting on the Fed, I guess,” the trader said early in the day, as the central bank looked to wrap up the two-day policy meeting that many were watching for clues as to when interest rates will increase.

But the Fed surprised some market players by stating that a rate increase – previously viewed by many as delayed until early 2016 – could occur at its December meeting, assuming unemployment stays low and an inflation target of 2% is hit.

“The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced,” the Fed said.

The markets have been speculating that recent weakness in equities and around the globe – as well as economic data that has not been overly optimistic – would encourage the Fed to leave off lift-off until 2016. However, if that proves to be the case, the timetable begins to shorten due to the coming year’s presidential election.

Still, the trader said that preferred investors were taking a “bad news is good news” approach, as keeping interest rates low is a boon for the space.

“There’s not a lot of credit issues out there,” the trader said, aside from a few speculative-grade securities and anything linked to oil and gas. “There’s really no reason for us not to tighten up a little bit.”

As for issuers, the preferred market is “not a bad place to come if you are looking at raising capital.”

Southern up post-numbers

In mid-week trading, Southern Co.’s 6.25% series 2015A junior subordinated notes due 2075 (NYSE: SOJA) improved following the Atlanta-based electric utility’s earnings release.

The notes finished up 14 cents at $26.23.

For the third quarter, Southern Co. posted a profit of $959 million, or $1.05 per share. That compared to a profit of $718 million, or 80 cents a share, the year before.

Revenues increased 1.2% to $5.4 billion.

On an adjusted basis, earnings per share were $1.17, up from $1.09 the previous year.

Analysts polled by Thomson Reuters had forecast earnings per share of $1.16 on revenue of $5.72 billion.

The company said gains in its solar investments and higher retail revenue were the reason for the wider profit.

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