NEW YORK, Aug. 17, 2007
Stocks Rally On Fed's Rate Cut
Half Percentage Point Cut To Discount Rate Helps Boost Trading As Dow Closes Up 230 Points
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Play CBS Video Video Fed Cut Spurs Wall Street The stock market makes significant gains after The Federal Reserve made it easier for banks to borrow money. It is hoped this move will calm consumer spending fears. Anthony Mason reports.
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Trading was still volatile throughout the day, with the Dow rising more than 320 points in early trading, giving up more than half those gains, and then gaining steam once more. (AP)
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In Tokyo Friday, Japanese stocks dipped more than 5 percent to a one-year low as the dollar's sharp drop against the yen aggravated concern about earnings outlooks in a market already hurt by the U.S. housing loan crisis. (AP)
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The Fed — which had resisted lowering rates despite weeks of market volatility, and instead added nearly $120 billion in liquidity into the banking system — cut its discount rate to 5.75 percent from 6.25 percent. The central bank acknowledged that the stock market turbulence that has pulled the Dow by hundreds of points a day was posing a risk to economic growth.
"People were kind of baiting the Fed into doing something, and finally they did," said Philip Dow, managing director of equity trading at RBC Dain Rauscher. "The playground monitor finally showed up, and it showed someone cares and someone is bringing rationality into the market."
But the central bank made no mention of lowering its target for the federal funds rate, which has stood at 5.25 percent for more than a year. The fed funds rate determines the rates that banks charge each other, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market won't settle down until the Fed lowers the fed funds rate target, considered a more significant benchmark.
If the market doesn't get that rate cut, Friday's gains may not stick, especially since it's likely there will be plenty more news in the coming days and weeks of further troubles in the lending industry. Any mention of problems at subprime lenders or funds that invested in mortgages has sent stocks skidding, and so have worries that tighter credit will stanch the flood of takeovers, which sent Wall Street to new highs earlier this year.
Still, the Fed made it clear this wasn't the only step it would take if the volatility continued. In its statement, the Fed said it "is prepared to act as needed."
According to preliminary calculations, the Dow Jones industrial average surged 233.30, or 1.82 percent, to 13,079.08.
Since its midday low on Thursday, the Dow has recovered more than 500 points, reports CBS News correspondent Anthony Mason. All three major indexes—the Dow, the NASDAQ and the S&P 500—are back in the plus column for the year.
Trading was still volatile throughout the day, with the Dow rising more than 320 points in early trading, giving up more than half those gains, and then gaining steam once more. However, the blue chip index stayed in positive territory the whole time. The Dow is more than 6 percent below its record close of 14,000.41 reached July 19, and fell more than 1 percent for the week.
The Standard & Poor's 500 index rose 34.65, or 2.46 percent, to 1,445.92, and the Nasdaq composite index rose 53.96, or 2.20 percent, to 2,505.03.
Bonds slipped as stocks rose, with the yield on the benchmark 10-year Treasury note rising to 4.67 percent from 4.66 percent late Thursday.
Traders who bet on how the Fed might alter rates expect the central bank will lower the benchmark fed funds rate at its next meeting on Sept. 18. Some investors are hoping for a cut in that benchmark rate even sooner.
"If the cut in the discount rate succeeds in restoring confidence, then perhaps there is no need for the Fed to cut rates at the Sept. 18 meeting," said John Lonski, chief economist of Moody's Investor Service. He added, though, that the key line in the Fed's statement Friday was its willingness to take more steps to prevent market volatility from harming the economy.
"That means the Fed is prepared to make a rate cut if stability doesn't come," Lonski said.
Gains were seen in all sectors of the stock market, but financial stocks, which have been battered by the growing problems in mortgage lending, saw particularly heavy buying. Dow component JPMorgan Chase & Co. rose 3.4 percent, while Merrill Lynch and Lehman Brothers rose more than 6 percent.
The pummeled stocks of mortgage lenders also saw significant increases. The most actively traded stock on the New York Stock Exchange, and one of its biggest percentage gainers, was Countrywide Financial Corp. The home mortgage lender rose $2.48, or 13.1 percent, to $21.43.
Energy and industrial companies also strengthened notably. The biggest gainers among the 30 Dow companies were aluminum producer Alcoa Inc. and oil company Exxon Mobil Corp., which both jumped more than 4 percent.
Major European indexes recovered substantially after the Fed's announcement from steep declines in earlier trading. Britain's FTSE 100 rose 3.50 percent, Germany's DAX index rose 1.49 percent, and France's CAC-40 rose 1.86 percent.
In Asian trading, which closed before the Fed lowered the discount rate, Japan's Nikkei stock average had plunged 5.42 percent as the yen continued its climb against the dollar. The dollar briefly dipped below 112 yen for the first time in over a year, suggesting that some investors were taking their Japanese currency out of higher-yielding dollar assets.
The dollar was mixed against other major currencies. Gold prices jumped.
Advancing issues outnumbered decliners by about 7 to 1 on the New York Stock Exchange, where volume came to 2.48 billion shares, down from 2.92 billion shares.
The Russell 2000 index of smaller companies added 17.20, or 2.24 percent, to 786.03.
Crude oil futures rose 98 cents to $71.98 a barrel. Traders have been tracking the path of Hurricane Dean, which is threatening to head west into the Gulf of Mexico, where many oil installations are located.
© MMVII The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
The secrets of tennis legend 
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See all 63 Commentsthere are seven billion folk and so seven billion companies
if each must ultimate murge into one company fits all, then the business plan of the one is no more well than the business plan of the many and will ultimately fail
there must be one ''light bulb'' or ''miracle'' of a business plan that really does fit all
but congresses busy stamping out the competition that is busy stamping out the competition, are destined to be stamped out whether they win or lose, for their business plan is faulty with a terminal loop error
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you said...
The Democrats seem to feel that taxation and government spending are good ways to stimulate the economy.
Posted by rhs648 at 12:22 AM : Aug 18, 2007
if that were true then communism and socialism and islamism would have the strongest economies on the planet...
they do not... never have and never will have...
and yet you did not....
name a time and place where that has worked in any sustainable fashion??? it is a ponzi scheme, a pyramid... unsustainabble... where sound business practices are sustainable...
Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery. Winston Churchill.
Posted by lars008
Lars008 - Open your eyes and read my posts. I did answer your question. Monetary policy is used daily by government. I repeat--monetary policy is used daily by government. Monetary policy is not socialism. Socialism is where the government owns and controls the means of production. In a socialist country, the government would own the railroads, the power companies, the automobile plants, and most other major businesses. This is certainly not the case in America.
and yet you did not....
name a time and place where that has worked in any sustainable fashion??? it is a ponzi scheme, a pyramid... unsustainabble... where sound business practices are sustainable...
Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery. Winston Churchill.
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. Winston Churchill.
Posted by lars008
Lars008 - You need to take a good economics course, read the financial pages, and start watching programs on investing. Monetary policy is used daily by government to stimulate the economy, reduce the impact of economic cycles, and influence our nation''s priorities. Sometimes, monetary policy is used to slow an overheated economy. If it makes you feel any better, I support lower taxes and increased individual spending. However, I realize that there is more than "one way to skin a cat." Flexibility and open mindedness by more people would result in a better America.
RE: "We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. Winston Churchill."
Or pulling itself up by its "bootstraps".
hahahahahaha name a time and place where that has worked in any sustainable fashion??? it is a ponzi scheme, a pyramid... unsustainabble... where sound business practices are sustainable...
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. Winston Churchill.
Re: "The fed funds rate determines the rates that banks charge each other, while the discount rate only covers loans the Fed makes to banks."
When banks borrow money from the Fed, i is a sign that they are in big trouble.
This is a panic move.
Posted by lars008
There are different economic theories and models supported by economists and political parties. The Democrats seem to feel that taxation and government spending are good ways to stimulate the economy. The Republicans seem to feel that lower taxes and increased private spending are good ways to stimulate the economy. Both methods probably work and the methods you support become a matter of personal belief. The government can definitely spend its way out of a recession. Anytime government and/or consumers spend a lot of money, employment expands, people buy products and services, and the economy prospers.
hahahaha that was reaganomics and contract with america gop that did that skippy... taxes are a drag on the economy... the goverment cannot spend it''s way out of a recession... it is amazing that it took clintoon so long to kill reagans economy...
Deficit Falls to $205 Billion
http://www.breitbart.com/article.php?id=D8QAD5LG1&show_article=1
Good Thing We Cut Taxes
http://ezraklein.typepad.com/blog/2006/09/good_thing_we_c.html
Don''t Just Cut Taxes - Cut Spending
http://www.heritage.org/Press/Commentary/ed021802.cfm?RenderforPrint=1
The greatest economic boom ever
Just how red-hot is the current worldwide expansion? "This is far and away the strongest global economy I''ve seen in my business lifetime," U.S. Treasury Secretary Hank Paulson declared on a recent visit to Fortune''s offices.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100134937/index.htm?section=money_latest
Posted by nyckate
This is called monetary policy. The Federal Reserve was formed in large part to minimize economic swings, recessions, and depressions. Prior to the Federal Reserve, it was the belief of many people that government should not interfere with the economy. Because of this, recessions were more frequest and severe. Taxation and trade are also examples of monetary policy. President Clinton created one of the largest tax increases in our history (no criticism). Huge amounts of goverment spending then stimulated the economy. At the same time, President Clinton opened trade with China giving us much lower prices on impoted goods. This offset the loss of spending power for many of us. Monetary policy is a way of manipulating the economy. Finally, neither Republicans nor Democrats want weak economies. The phrase "its the economy stupid" helped propel President Clinton into office.
Every week "mother" has to bail out the market with infusions of cash and interest rate drops?
Free market my rear. All this day to day movement is just short termers trying to outguess the next guy.
The true market value is based on performance/earnings and potential for REAL earning. All else is conjecture and those bubbles need to burst.
Lending to people who can''t pay you back = you deserve to lose money. Borrow to pay for what you can''t afford = you deserve bankruptcy.
Dear Fed.....let the market adjust. The economy is not based on real estate values!!!
The majority of people do not know how to use credit cards "wisely" and instead end up using them as if they were "cash" that they had to spend.If a credit card is used wisely, paid off prior to any accumalation of intrest then they are fine for "occasions".I only use a debit/credit card that is directly tied to my bank account.
i''d rather be dead than to live in this perverted freakish land of the daring grindets and the home of the shock and awe swingones
if i have to break all the bones in my body and put them all back for se x and pleasure just one more time cause some hikenswim nerfbus bump car camp n nap somebody feels like get''n frisky,
i swear find a cure for the common life
'' ... why go to war to save the world from folk that invest money and votes in non-charity and taxation at gunpoint? ... ''
Posted by radiob at 07:15 PM : Aug 17, 2007
HiYa'' radio, I slightly disagree with you on an otherwise good post. I use 0% interest cards for purchases under $2000.00 and have them piad for within the 0% time period. (up to 18 months depending on the card used.) You are right on about not borrowing more than you can repay. Never borrow money that you do not have. People will say thats the only reason for borrowing but you know what I mean.
Posted by ibsteve2u
Have you ever bought and traded stocks? How long have you been following the stock market?
Now as far as the part of your statement regarding home loans the national average is 7.76% and a wise investor with "good" credit can obtain the loan for less. Is this cheap compared to 4 years ago when national averages were around 5.125% no but is close to the "average" rate of the last 30 years.Never borrow more than you can pay for and "DO NOT USE CREDIT CARDS EVER"!
Second there are some great bargains available now that have withstood every recession we have had since 1987. Research buy on the old multiple PE''s and cash flow. 50% profit can be made from these levels on select stocks in less than a year.
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