Stocks surge as Fed slashes interest rates to record lows, pledges broad support for economy
NEW YORK (AP) -- A surprised Wall Street bolted higher Tuesday after the Federal Reserve's historic decision to further slash interest rates and provide broad support to revive the troubled economy.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."
The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say 'Quit watching interest rates, watch the other things that we can and will do,'" said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed's announcement.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.
The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.
The number of stocks advancing outnumbered those declining by 5-to-1 on the New York Stock Exchange, where consolidated volume came to 5.81 billion shares, up from 4.37 billion on Monday.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday.
The yield on the three-month T-bill -- whose yield has at times gone negative due to frenzied buying -- was at 0.02, flat with late Monday.
The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.
Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.
Battered financial stocks led the market's advance. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. But investors were apparently relieved that the loss wasn't wider and sent the stock up $9.54, or 14 percent, to $76.
Other financial names jumped. JPMorgan Chase & Co. rose $3.72, or 13 percent, to $32.35, while Wells Fargo & Co. gained $3.71, or 14 percent, to $29.78.
For the gains in stocks to hold, McDonald said the credit markets need to show signs that fear is dissipating.
"The credit markets now need to show some improvement," he said.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
The rate decision came on a day when investors received two more pieces of evidence on Tuesday that the economy was worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the recent string of downbeat economic readings could eventually convince Wall Street that the economy has hit a bottom and could be poised for a modest recovery. In past downturns, the data remain weak long after the economy has began to recover.
"The idea is it's so bad that maybe it doesn't take much to go up from here," he said.
Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff, who is accused of scamming investors.
Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes -- from major banks to small charities -- may record losses of more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.
Markets overseas were mixed. Japan's Nikkei stock average fell 1.12 percent, while Hong Kong's Hang Seng index rose 0.55 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 1.61 percent, and France's CAC-40 rose 2.07 percent.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Tuesday, December 16, 2008
Friday, November 21, 2008
Dow up 494 as Obama prepares to name treasury boss [yahoo finance]
Dow ends up nearly 500 in surprise comeback after report Geithner will be new Treasury secretary
NEW YORK (AP) -- Wall Street put a stop to a terrifying decline and stormed higher Friday as President-elect Barack Obama appeared ready to tap the chief of the New York Federal Reserve as the next treasury secretary and hand him the herculean task of righting the U.S. financial system. The Dow Jones industrial average, which had broken even for the day until news of the nomination leaked about an hour before the close, raced upward and finished 494 points higher, a rally of more than 6 1/2 percent.
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The outbreak of buying pushed the Dow above 8,000 -- a figure that would have seemed like a nightmare three months ago but on Friday was a relief for Americans who have watched their investments and retirement savings drain away with alarming speed.
In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor's 500 index had sunk to its lowest level since 1997.
The turnaround came when word reached Wall Street that Obama was likely to nominate New York Fed president Timothy Geithner, 47, for treasury secretary. Geithner would assume top responsibility for tackling what threatens to be the deepest recession in a generation.
Financial markets despise uncertainty, and investors were looking for a clear message from Obama on who will make up his economic brain trust. Wall Street had been voicing increasing frustration with Henry Paulson, the current treasury secretary, over his erratic handling of the federal financial rescue system.
"Something needed to be done on the economy," said Ben Halliburton, chief investment officer at Tradition Capital Management. "The fact that they've got the team together, maybe that is going to shorten the period of indecision."
Elsewhere, the government continued its efforts to shore up the financial system. The Federal Deposit Insurance Corp. also said it would guarantee up to $1.4 trillion in U.S. bank debt for more than three years as part of the government's financial rescue plan.
The decision is aimed at breaking the logjam of bank-to-bank lending. The health of the economy depends on the free flow of credit, and credit markets cinched up again as the market plunged earlier this week.
The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.
The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 9.27 billion shares, up from the 8.96 billion shares that exchanged hands on Thursday. This makes Friday's volume the heaviest since the 11.20 billion seen on Oct. 10.
The Friday afternoon rally managed to prevent the week from being one of the few most dismal in Wall Street history. Corporate mainstays running the gamut from Gap Inc. to Alcoa Inc. and Walt Disney Co. to Microsoft Corp. surged by double-digit amounts.
But it did not erase heavy losses for the week. The Dow finished down about 5 percent for the five days, and other major averages suffered, too -- 8 percent for the S&P 500, nearly 9 percent for the Nasdaq.
The Dow finished at 8,046, and the S&P just a hair over 800.
But the S&P is still down 46 percent so far this year, the most since 1931. And there was still plenty to be concerned about. Citigroup stock took another huge hit -- down 20 percent of what's left of its value, to close at $3.77 -- as pressure built on the bank to sell part or all of itself.
With the economic bad news piling up, President George W. Bush signed an extension of jobless benefits that will make sure millions of laid-off workers keep getting their unemployment checks as the holidays approach. Congress had approved the bill Thursday and rushed it to the president before he took a flight to Peru for an economic summit.
Geithner worked at the Treasury Department for 13 years, leaving in 2001. People close to him say he is motivated by difficult challenges. Justin Rudelson, a friend of Geithner's from Dartmouth College, said he asked Geithner in June whether he was getting enough sleep.
"He said, 'Justin, you have to realize, we live for this. We live for these kinds of crises,'" Rudelson recalled.
While a Geithner appointment could remove the cloud of uncertainty surrounding Obama's economic team has been removed, there are still plenty of unknowns facing the market.
As a result, volatility will remain a major force on Wall Street for some time to come, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He said worries about marquee companies from General Motors to Citigroup are unnerving investors.
"What we're seeing is these symbols of American business history really suffering and prompting investors to call into question the viability of the system," Ablin said, referring to the functioning of the broader economy.
Investors have also worried about the fate of the Detroit Three automakers, which are perilously low on cash and asking Washington for more help. But lawmakers have likely put off a vote on whether to extend a lifeline until next month and have asked the automakers for detailed plans about how they would use the money. The prospect of a bankruptcy filing by one or more of the companies has added to Wall Street's worries about the state of the economy.
Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.20 percent from 3.00 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.04 percent from 0.01 percent late Thursday.
Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies, while gold prices rose.
Overseas, Japan's Nikkei stock average jumped 2.70 percent. In European trading, Britain's FTSE 100 fell 2.43 percent, while Germany's DAX index fell 2.20 percent, and France's CAC-40 fell 3.33 percent.
The Dow Jones industrial average ended the week down down 450.89, or 5.31 percent, at 8,046.42. The Standard & Poor's 500 index finished down 73.26, or 8.39 percent, at 800.03. The Nasdaq composite index ended the week down 132.50, or 8.74 percent, at 1,384.35.
The Russell 2000 index finished the week down 49.98, or 10.95 percent, at 406.54.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,926.05, down 795.83 points, or 9.12 percent, for the week. A year ago, the index was at 14,288.29.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
NEW YORK (AP) -- Wall Street put a stop to a terrifying decline and stormed higher Friday as President-elect Barack Obama appeared ready to tap the chief of the New York Federal Reserve as the next treasury secretary and hand him the herculean task of righting the U.S. financial system. The Dow Jones industrial average, which had broken even for the day until news of the nomination leaked about an hour before the close, raced upward and finished 494 points higher, a rally of more than 6 1/2 percent.
ADVERTISEMENT
The outbreak of buying pushed the Dow above 8,000 -- a figure that would have seemed like a nightmare three months ago but on Friday was a relief for Americans who have watched their investments and retirement savings drain away with alarming speed.
In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor's 500 index had sunk to its lowest level since 1997.
The turnaround came when word reached Wall Street that Obama was likely to nominate New York Fed president Timothy Geithner, 47, for treasury secretary. Geithner would assume top responsibility for tackling what threatens to be the deepest recession in a generation.
Financial markets despise uncertainty, and investors were looking for a clear message from Obama on who will make up his economic brain trust. Wall Street had been voicing increasing frustration with Henry Paulson, the current treasury secretary, over his erratic handling of the federal financial rescue system.
"Something needed to be done on the economy," said Ben Halliburton, chief investment officer at Tradition Capital Management. "The fact that they've got the team together, maybe that is going to shorten the period of indecision."
Elsewhere, the government continued its efforts to shore up the financial system. The Federal Deposit Insurance Corp. also said it would guarantee up to $1.4 trillion in U.S. bank debt for more than three years as part of the government's financial rescue plan.
The decision is aimed at breaking the logjam of bank-to-bank lending. The health of the economy depends on the free flow of credit, and credit markets cinched up again as the market plunged earlier this week.
The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.
The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 9.27 billion shares, up from the 8.96 billion shares that exchanged hands on Thursday. This makes Friday's volume the heaviest since the 11.20 billion seen on Oct. 10.
The Friday afternoon rally managed to prevent the week from being one of the few most dismal in Wall Street history. Corporate mainstays running the gamut from Gap Inc. to Alcoa Inc. and Walt Disney Co. to Microsoft Corp. surged by double-digit amounts.
But it did not erase heavy losses for the week. The Dow finished down about 5 percent for the five days, and other major averages suffered, too -- 8 percent for the S&P 500, nearly 9 percent for the Nasdaq.
The Dow finished at 8,046, and the S&P just a hair over 800.
But the S&P is still down 46 percent so far this year, the most since 1931. And there was still plenty to be concerned about. Citigroup stock took another huge hit -- down 20 percent of what's left of its value, to close at $3.77 -- as pressure built on the bank to sell part or all of itself.
With the economic bad news piling up, President George W. Bush signed an extension of jobless benefits that will make sure millions of laid-off workers keep getting their unemployment checks as the holidays approach. Congress had approved the bill Thursday and rushed it to the president before he took a flight to Peru for an economic summit.
Geithner worked at the Treasury Department for 13 years, leaving in 2001. People close to him say he is motivated by difficult challenges. Justin Rudelson, a friend of Geithner's from Dartmouth College, said he asked Geithner in June whether he was getting enough sleep.
"He said, 'Justin, you have to realize, we live for this. We live for these kinds of crises,'" Rudelson recalled.
While a Geithner appointment could remove the cloud of uncertainty surrounding Obama's economic team has been removed, there are still plenty of unknowns facing the market.
As a result, volatility will remain a major force on Wall Street for some time to come, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He said worries about marquee companies from General Motors to Citigroup are unnerving investors.
"What we're seeing is these symbols of American business history really suffering and prompting investors to call into question the viability of the system," Ablin said, referring to the functioning of the broader economy.
Investors have also worried about the fate of the Detroit Three automakers, which are perilously low on cash and asking Washington for more help. But lawmakers have likely put off a vote on whether to extend a lifeline until next month and have asked the automakers for detailed plans about how they would use the money. The prospect of a bankruptcy filing by one or more of the companies has added to Wall Street's worries about the state of the economy.
Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.20 percent from 3.00 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.04 percent from 0.01 percent late Thursday.
Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies, while gold prices rose.
Overseas, Japan's Nikkei stock average jumped 2.70 percent. In European trading, Britain's FTSE 100 fell 2.43 percent, while Germany's DAX index fell 2.20 percent, and France's CAC-40 fell 3.33 percent.
The Dow Jones industrial average ended the week down down 450.89, or 5.31 percent, at 8,046.42. The Standard & Poor's 500 index finished down 73.26, or 8.39 percent, at 800.03. The Nasdaq composite index ended the week down 132.50, or 8.74 percent, at 1,384.35.
The Russell 2000 index finished the week down 49.98, or 10.95 percent, at 406.54.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,926.05, down 795.83 points, or 9.12 percent, for the week. A year ago, the index was at 14,288.29.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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