Markets Get Off The Mat

After Steep Early Decline Followed By Rate Cut, Stocks Limp Upward

(AP)  An unusual emergency interest rate cut by the Federal Reserve gave Wall Street a partial rebound Tuesday from a precipitious early decline - and perhaps the first steps toward a long-term recovery. The rest of the comeback, for the economy as well as the stock market, may depend on a turnaround in the battered housing market and renewed confidence among U.S. consumers.

The Dow Jones industrial average, down 465 points shortly after trading began, fluctuated throughout the session before closing with a milder drop of 128.11, or 1.06 percent, at 11,971.19, according to preliminary calculations.

U.S. stocks began the day following the lead of markets abroad that had plummeted for two straight days, and also extended their own steep losses from last week. Fears of a U.S. recession - one that would spread to other economies - had investors fleeing stocks worldwide.

The Fed, in a move anticipated by many traders, moved before the opening of trading, cutting its benchmark federal funds rate by 0.75 percentage point. The Dow and other major indexes spent the rest of the day fluctuating, at times approaching the break-even point before heading down again.

The fact stocks didn't continue their plunge was a positive sign, but economists and analysts said a full recovery wasn't likely in the near term. One of the market's greatest concerns is that consumers, who normally account for two-thirds of the economy, aren't in a position to spend the country back into solid growth. Even if rates continue to fall, Americans have been showing increasing signs of cutting back rather than borrowing or spending, even during the holiday season.

"People are up to their eyeballs in debt, and they're being asked to borrow more," said Mike Schenk, senior economist for the Credit Union National Association.

"This is a cure for the wrong disease. It makes everybody feel good, but it's not going to have any ongoing benefit," said Daniel Alpert, managing director of Westwood Capital LLC. "We need to get ourselves out of a mountain of debt and overvalued properties."

Still, interest rate reductions are one strategy the Fed has used in previous crises to help the economy recover.

The Fed lowered the target federal funds rate, or the interest banks charge one another for overnight loans, to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to 4 percent.

This rate cut was unusual, coming between regularly scheduled meetings of the central bank's policy-making Open Markets Committee. The next gathering is a week away. Also, the cut was larger than the half-percentage point anticipated to be announced at the end of that two-day meeting, and the widest cut in the target fed funds rate on records going back to 1990.

A rate cut tends to spur the economy by making it cheaper for businesses to borrow money. It would also lighten the burden on people with credit card debt and mortgages that have adjustable rates.

But its effect on Wall Street wasn't overwhelmingly positive. The Standard & Poor's 500 index, the broad market measure most closely followed by traders, fell 14.69, or 1.11 percent, to 1,310.50, while the Nasdaq composite index lost 47.75, or 2.04 percent, to 2,292.27.

Stocks have been beaten down amid the mortgage and credit crisis. The Dow, for example, is down nearly 10 percent since the beginning of the year - logging its worst first 14 trading days of the year ever. It is more than 15 percent since its record close of 14,16.53 on Oct. 9, and is at its lowest close since Oct. 17, 2006.

[jesse285-2009]

Well after 25 year some one finally woke up, you can not make housing the backbone of any statehood that when all the outlaw come out and then you have two people who want to have a house and live in for 40s to 50s year, but somebody seen to think that they can get rich by sell house''s, I know when this bring back in the late 70s 79 to 81; that this was going to come back and bite us, yes that might help us in the future just drop the cost''s of owning a HOUSE.

[skyk-2009]

MCVet - did you get killed at Stalingrad in a previous life ?

The point of reference we were talking about had nothing to do with standard of living.




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Posted by speakinup at 09:06 PM : Jan 22, 2008
+ report abuse

Why not? IF we are to address ANY "point of referrence" shouldn''t it be the Standard of Living? Sarge is a very good friend, talked to him many times and he is a HIGHLY decorated Combat Vet... I do not think insults like this are justified.

[david1737]

People learn best as individuals with no walls and no boundaries.

Posted by USAyesterday


I certainly have.

[logicanada]

McVet and Speak...the easiest way to phrase it,is that all the change on every issue your current presidential hopefuls speak of (barring being entrenched in the Middle East ) is already S.O.P. in Canada.

[speakinup]

MCVet - did you get killed at Stalingrad in a previous life ?

The point of reference we were talking about had nothing to do with standard of living.

[mcvet]

So are the Canadians better off when talking about a "point of reference ?" I think pretty much it is eaqual between the two countries.


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Posted by speakinup at 07:23 PM : Jan 22, 2008
+ report abuse

You should check out the MOST important point of reference.. the STANDARD OF LIVING! We have fallen so far behind Canada, if we started back up the ladder, something we have never done with a fascist in the White House, it would take a full 8 years for us to be within shouting distance of them. Sieg Heil Bush!!

[speakinup]

So, I hope all of those folks that thought China would be willing to ''cash in their t-bills'' and not support out debt anymore made a realization over the last few days.

China''s market got hurt quite a bit, didn''t it.

That is why your scenario is not likely to come about.

China would have to cut it''s own throat to effect an economic calamity upon us.

It is a world market.

[speakinup]

logicanada - my bad - I thought you supported Hugo Chavez, and were going to move there because of him.

I hear what you are saying about warmer climates. I was in Costa Rica recently (before the rains) and found the weather GREAT.

ok - I was hoping to get some first hand info from a poster about the country.

Things are ok for me. Nice chatting with you.

[david1737]

speakinup

True. Our neighbors do enjoy many of the advantages of being close to the us.

[david1737]

speakinup

True. Our neighbors do enjoy many of the advantages of being close to the us.

[david1737]

My statement is a bit general. However, I did say "most people" not all people. I will try to refrain from such "blanket statements" I can get carried away.

[logicanada]

Speak!!! howyadoon?
Hey, bud, if I move it''s not for ''political reasons'' but because it''s a little warmer and my wife of 24 years likes gardening.
There seems to be a multitude of options in recent weeks as the Keynesian message seems to be pervading the southern hemisphere after 50 years of Freidman''s folly.
Argentina, Bolivia and even Brazil are looking pretty attractive, though some are as yet unsettled.
Time will tell, and as property is still on the rise here we may wait for optimum payout. How are you, by the bye??

[slim1h2o]

Most people in the US know nothing about the rest of the world. Most of us don''''t travel and if we do, we travel in large tour groups or on cruise ships.

Most don''''t have any true point of reference.

Posted by david1737 at 07:08 PM : Jan 22, 2008

Gee, I wished people would stop making blanket statements like that.

I think people are a little smarter than that!

[speakinup]

logicanada - are you still moving to Venezuela this coming summer, for political reasons ?

[speakinup]

"Most people in the US know nothing about the rest of the world. Most of us don''''t travel and if we do, we travel in large tour groups or on cruise ships.
"Most don''t have any true point of reference. Posted david1737

I''m not sure I''d say they know nothing about the rest of the world. In fact, with the exception of Mexico, I suspect the US is one of the more traveled countries in the world.

And, for the most part, while we do buy meds via Canada, they pretty much enjoy having a powerful neighbor right next door that has the Monroe Doctrine.

Not to mention the trade we provide.

So are the Canadians better off when talking about a "point of reference ?" I think pretty much it is eaqual between the two countries.

[logicanada]

david1737...thanks for the support.
Baggy and I have a long-running feud on these posts and I participate with him for amusement.
It''s kind of like battling ants with water...you drown out most of his inane thoughts but a few weeks later they can be seen scurrying out of the cracks in your sidewalk like....like ants.
Pest!

[david1737]

BaghdadsHere

Do some research about Canada before putting it down.

[david1737]

Fact:

Many US citizen rely on Canada to buy discount pharma products.

[david1737]

Remember Bush said this of Africa:

"I''ve never been there, but I here It''s a nice country."

[david1737]

Baggyyyyyy...re-your 6:30 post...have a little look at our trade SURPLUS and our budget SURPLUS and our free Medicare and our (not spun) unemployment ratings, and our standard of living, and our ratings worldwide for educational standards and our....etc, etc.
But then, trying to reason with you is like trying to throw popcorn into a breeze...it doesn''''''''t go very far.

Posted by logicanada


Good post.

Most people in the US know nothing about the rest of the world. Most of us don''t travel and if we do, we travel in large tour groups or on cruise ships.

Most don''t have any true point of reference.