Wall Street Extends Rally After Fed Cut
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Wall Street built on its gains today as investors bet that the cheaper money the Federal Reserve unleashed with its decision to cut interest rates will give a boost to corporate profits and the overall economy.
The rise in stocks for a second day reassured some investors that yesterday’s huge advance was based on somewhat solid footing and not simply a one-day pop. A mild reading of the Labor Department’s August consumer price index, which slipped 0.1%, helped reassure investors about the Fed’s decision to focus on the economy and set aside some of its concerns about inflation. Further, the Commerce Department’s report that new home construction fell for the third month in a row in August confirmed that the housing market is still struggling.
Wall Street took comfort from the Fed’s move to lower the target federal funds rate to 4.75% from 5.25% and were able to look past another rise in energy prices. Oil settled at a fresh record today.
According to preliminary calculations, the Dow Jones industrials rose 76.17, or 0.55%, to 13,815.56. While the Dow came off its highs of the session the move higher came a day after the 30-stock index climbed nearly 336 points — its biggest one-day point gain in nearly five years.
Broader stock indicators also rose. The Standard & Poor’s 500 index rose 9.25, or 0.61%, to 1,529.03. The Nasdaq composite index rose 14.82, or 0.56%, to 2,666.48.
The Russell 2000 index of smaller companies was the biggest advancer today as it had been the day before. The index rose 10.77, or 1.34%, to 817.40. Small-cap stocks had taken a hit in Wall Street’s recent retrenchment as investors often regard bigger companies as better able to weather an economic downturn because of substantial overseas operations and an ability to perhaps skate by on thinner profit margins.
Bonds ended sharply lower as investors transferred more money from fixed income investments to stocks. The yield on the benchmark 10-year Treasury note rising to 4.52% from 4.47% at yesterday’s close.
Economic data supported a case for pushing stocks higher. The August consumer price index and the core CPI, which excludes often volatile food and energy prices, came in as expected. The core CPI advanced 0.2%.
And the Commerce Department reported that construction of new homes and apartments dipped last month by 2.6% to a seasonally adjusted annual rate of 1.331 million units, the slowest pace in 12 years.
In August, commodity prices fell along with stocks as investors drew their cash out of riskier assets and moved into safer government securities. However, crude oil prices are back at record highs, moving briefly above $82 a barrel. Light, sweet crude settled up 42 cents at $81.93 a barrel on the New York Mercantile Exchange. The record came a day after oil closed above $81 for the first time.
And in a trend that’s likely to exacerbate the effects of high commodities prices on American consumers, the dollar slumped to a new low against the euro today. The dollar was mixed against other major currencies, while gold prices rose, extending the strong gains it made yesterday.
“I would have thought that based on prior pattern we wouldn’t have seen this kind of follow through. The fact that we’re continuing today is pretty encouraging,” a vice president of active trading and investing at Charles Schwab & Co., Joe Vietri, said.
“The aggressive move — I think people are applauding that. They’re really trying to get ahead of this thing to make sure we don’t slip into a recession,” he said of the Fed. “Certainly this is going to have a positive impact on corporate profits.”
However, he remains cautious. “I’m certainly not thinking that we’re in a long-term bull market here.”
But enthusiasm from yesterday’s rate cut extended in particular to industries related to financing. Mortgage lender Countrywide Financial Corp. rose 66 cents, or 3.3%, to $20.54 after its chief executive, Angelo Mozilo, late yesterday issued a positive forecast for his company.
Morgan Stanley fell $1.48 to $67.03 after the no. 2 American investment bank said its third-quarter profit sank 17% as it was forced to write down nearly $1 billion in loans following the summer’s global credit upheaval.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.67 billion shares compared with 1.65 billion shares traded yesterday.
European and Asian stocks surged following the Fed’s rate cut. Britain’s FTSE 100 finished up 2.81%, Germany’s DAX index rose 2.32%, and France’s CAC-40 rose 3.27%. Japan’s Nikkei index closed up 3.67% and Hong Kong’s Hang Seng Index rose 3.98%.