Market Happy To Ignore Pessimism For A Day

NEW YORK — An already soaring Wall Street extended its advance Tuesday after the Federal Reserve left interest rates unchanged and assuaged some of the market's fears about the economy. The Dow Jones industrial average shot up more than 330 points, and all the major indexes had gains approaching 3 percent.

The market was enjoying a big rally before the Fed meeting as investors responded to a report that services sector activity fell less than expected last month and to another drop in oil prices that took crude as low as $118 a barrel.

The Fed gave stocks another huge push higher in the last hours of trading. In a statement accompanying its widely expected rate decision, the central bank reported that "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports." That assessment was welcome news to a market that has feared the economy was falling into recession because of weak consumer spending.

The Fed did have some darker news, stating that "inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities." But it also said it expected inflation to moderate later in the year.

"The wording is a little strong over inflation, but there's really no real change in policy," said Brian Gendreau, investment strategist for ING Investment Management. "I think they are trying to buy time to allow the economy to recover, and so that the financials can slowly repair."

Ryan Larson, senior equity trader at Voyageur Asset Management, said he believes the central bank will keep rates on hold until the early part of 2009. He said of Fed officials, "they seem more concerned about growth for the rest of this year, and I'd say right now they appear to be dovish for the short term."

The oil market also helped soothe some of Wall Street's worries _ crude fell as low as $118 a barrel before settling at $119.17, down $2.24 on the New York Mercantile Exchange. Oil has now fallen $28 from its July 11 high of $147.27 on widening expectations that the slumping U.S. economy will keep curbing consumer demand for gasoline and other petroleum products.

Stocks had plunged in June and early July as oil reached new heights; the fear on Wall Street was that higher prices for fuel would curtail consumer spending, which accounts for more than two-thirds of the economy. With oil falling, and the Fed citing economic growth in its statement Tuesday, investors were allowing themselves to again feel a little more optimistic after a year of financial crises and soaring commodities costs that have pummeled stocks.

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The Dow rose 331.62, or 2.94 percent, to 11,615.77. It was up about 225 points shortly before the Fed's 2:15 p.m. EDT announcement.

Broader indexes also rose sharply. The Standard & Poor's 500 index added 35.87, or 2.87 percent, to 1,284.88, and the Nasdaq composite index rose 64.27, or 2.81 percent, to 2,349.83.

It was the Dow and S&P 500's biggest one-day gain since April 1, when the indexes kicked off the second quarter with a huge rally. This was also the Nasdaq's biggest point and percentage rise since mid-July.

Treasury bond prices fell after the Fed released its decision. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, rose to 4.02 percent from 3.97 percent late Monday.

The dollar traded mostly higher against other major currencies, while gold prices fell.

Early in the session, shares rose sharply after the Institute for Supply Management, the trade group of corporate purchasing executives, said its services sector index rose to 49.5 from 48.2 in June. Analysts surveyed by Thomson Financial/IFR predicted it would rise to 49.0.

Any reading below 50 signals contraction. The report is based on a survey of the institute's members and covers such indicators as new orders, employment, inventories, prices and exports and imports.

The notion that the sector might be in better shape than many investors feared gave Wall Street reason for optimism.

Earnings reports continued to stream in. Cisco Systems Inc. reported late Tuesday a 4.4 percent increase in net income for its latest quarter, beating analyst expectations by a penny per share. The world's largest maker of computer networking gear said sales spiked almost 10 percent. Shares closed up 66 cents, or 3 percent, at $22.65, then tacked on another 3 percent in after-hours trading.

Procter & Gamble Co., maker of Tide detergent and Gillette razors, said its fiscal fourth-quarter profit jumped 33 percent, boosted by price increases, overseas sales and tax benefits. Shares rose $2.09, or 3.2 percent, to $67.91.

Archer Daniels Midland Co. reported a 61 percent plunge in fourth-quarter profit, but said revenues soared amid higher prices for commodities like wheat and corn. The stock fell $1.53, or 6 percent, at $25.87.

D.R. Horton Inc., the nation's largest homebuilder, posted a narrower fiscal third-quarter loss as charges to write down the value of property declined. Shares fell 5 cents to $11.17.

Advancing issues led decliners by a 3 to 1 basis on the New York Stock Exchange, where consolidated volume came to 5.35 billion shares, up from 4.65 billion shares on Monday.

The Russell 2000 index of smaller companies rose 16.90, or 2.40 percent, at 721.04.

Overseas, Japan's Nikkei stock average fell 0.15 percent. Britain's FTSE 100 rose 2.52 percent, Germany's DAX index rose 2.66 percent, and France's CAC-40 rose 2.47 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Comments

[themodernleader]

H. P. 231. Your imagination confounds the alleged significance of the simple ideas and point of view I exaggerate. I am not a tool of any organization. I have been consistently wrong on the future collapse of our economy and currency. Yet, my predictions in the past year have been somewhat accurate. And the general direction has been prescient and better than 90 percent of the forecastors paid big money to tell us how the future will unfold.
The market should have folded big time under Ron Reagan, but the benevolent, spendthrift Feds printed money to bail out the despised speculators and Wall Streeters. This action made worse an economy already dangerously in decline. Now these same miscreants and swindlers have gotten us so deep in fraudulently derived debt that The Feds can not bail them out without destroying the Nation's currency. The entire financial syatem is on the edge of catasthrophe.We won't recover without considerable anguish and suffering.
You may consider more study and historical analysis before you continue to try to pigeon hole and stereryotype fellow bloggers without accurate facts. But I do admire your bravado and apparent self confidence. We need Americans who have the tenacity and courage to turn our country towards its proper destiny of marked ingenuity, innovation and performance.

[biwee]

The S&P 500 was around 1527 over 8 years ago. Today, it is around 1280. Factoring in inflation, the S&P 500 would have to be around 1800 today just to keep you even with inflation over the past 8 years if you had invested in a S&P 500 index fund in 2000, dividends excluded. The Dow going up over 300 pts in a day is meaningless. Republicans = financial disaster for most Americans. By the way, when the Shrub came into office, an Euro was worth about 85 cents....today, an Euro will buy
about $1.55. Heck of a job, Shrub!!

[Huffingtonposter231]

Actually Clintons stock market bubble started blowing up before he left office. His aids were out in force trying to protect his "legacy" by claiming that the stock market collapse was happening because Bush wont the election and would soon be President. Of course, that was a lie and the public knew it.

Kerry tried to blame the recession Clinton handed to Bush on Bush and the public never bought into it.

Those of us who were well diversified and held plenty of bonds MADE MONEY when Clintons bubble burst. But you had to be smart enough to know that a well diversified portfolio is better than chasing tech stocks and trying to get rich quick. And since then we have made money as the market bottomed and climbed again.

Not everyone here is so foolish as you may think that they can't see through an over simplistic bit of partisan spin.

[Chris]

After reviewing the posts is the a huff n puff contest for most referrnces to 1929?

PS where is the recession everyone has been telling me we are in or predicting is to come?

[Huffingtonposter231]

People looking for deep meaning in the daily fluctuations of wallstreet have allowed themselves to be deluded.

People who seek to "prove a point" on a daily fluctuation only fool themselves cause I sure don't believe it.

This remains the recession that never happened.

Kerry and all his rabid, brainless, political supporters were preaching to us about the "depression" the US was in. It of course, was not in a depression but a great expansion that lasted for years and went on to bring millions of jobs on-line.

And here we are again, another radicalized left wing liberal socialist put forward by the democratic party and all his supporters telling us that it's 1929 all over again. Until after the election when we will discover that 1929 was delayed and may not show up.

[joebaggadonuts]

Are you old enough to have had a job during a recession?

[Huffingtonposter231]

I've lived through recessions, dips, expansions, bubbles, bulls, and bears. I've lived too long perhaps because I see how fools use stock market ups and downs to try to manipulate ignorant people who don't know they are being lied to by radicalized manipulators on both sides of the isle.

[themodernleader]

The taxpayer, through the Treasury and Federal Reserve is wantonly destroying our currency for the sake of saving those banks and other institutions that generated bad bonds and bad debt. Saving those banks and brokerage firms (investment banks) meant a bad investment of about 475 billion dollars to date, not counting the 75 billion coming due shortly, if not now, on Fannie Mae and Freddie Mac. There is a virtual black out of how much money is being squandered at any given time.
This Treasury robbing scheme which has had the support of both political parties, apparently, would appear irrational, or treasonous, since it puts our Country on the path of currency destruction.
A rational motive for the Administration would be to do what has to be done to keep the stock market afloat to keep their power intact. From the beginning of their tenure the Bush Bunch, have argued that the main path to accumulated power is keeping the stock market inflated with an appearance of health at any cost.
The strategy has not been a total failure recognizing that the world stock markets of growing healthy economies have fallen 50 percent while the worst managed and sick American economy is down a much smaller 20 percent. The stock market is being propped up with our degraded and degrading currency. And it is safe to assume that the stock market will flourish through the election cycle at any and all costs to America's future.

[thegreatgiginthesky]

Remove the Naked shorting protection around the financials and see if this happens then. Till then this is all just smoke up the a$$

[Dayahka]

Ah, will wonders never cease? Happy days are here again! We can all go back to buying SUVs, driving all over the place for no good reason, and spending endless hours collecting useless junk at the malls--and the stock brokers can pad their bonuses and retirement accounts with the loot from more suckers. I'm sure the stock market will keep going up while the banks keep on losing money and going bankrupt. And how about when the commercial property foreclosures increase? And what about all the millions of Americans with "prime" mortgages who decide to walk away because their property is worth far less than their mortgage? Why, there's at least another twenty or thirty trillion dollars worth of losses still outstanding, municipalities and cities going bankrupt, jobs to be lost, and no money to be had--all this good news should just drive the markets to new heights of fantasy and delusions, wouldn't you say?

[swoosie1]

Can you say "Flat Screen TV" with that new "family" rebate scheme by Obama?

[Nofuzzydreams]

It's unbelievable how pessimistic this post and the bloggers here are. These are the naysayers and losers. These are the Obama supporters who want to see things negative so Obama can win the election.

[drkazmd65]

Am I wrong in my recollection (not from personal experience) that when the market crashed and burned in 1929 - it was up and down all spring & summer before October?

Are we in the same sort of relatively broad fluctuation prior to another big long-term drop?

Stay tuned folks - and hold onto your hats.

[dolphy]

I think the really big shoe will fall after the election, because Bush and his cronies/ilk will do everything to keep the economy from blowing up before the election.

[joebaggadonuts]

Ya, look at this guy's prognostications. Seems to line up with your thinking although he's much more math oriented and does not refer to the 29 crash specifically. http://www.huffingtonpost.com/users/profile/theeconomicfractalist

Also, I think we need to really feel the capitulation. I think we were almost there a couple of weeks back, but then we got the financials rally and now today's huge upswing, so I think we have more to go. When there's no one left buying for a few weeks in a row, then my gut might tell me we are there.

The other macro indicator that bothers me is that McCain is polling as well as he is. Everyone knows he's more of the same policies that got us here, meaning to me that the polling public is definitely not scared and believing we need massive change. They are out there jumping in at any hint of a rally. Clearly this is not a sign of capitulation. Based only on these two indicators I am pretty sure it's not hit bottom yet.

[outnow]

A whole bunch of people are in Las Vegas right now throwing money down a rat hole, too. Some people are compulsive gamblers. Too bad they don't just use their own money. After the election, there will be economic ruins all around as there was with Warren Harding in 1929. The Fed needs to raise rates to 4% for general overnight and we need to have government credit for infrastructure repair and maintenance.

[sandiegoconservative]

Look at the title of this article. Do we need any further proof that this site and the libs on it are only happy when it rains? You are all, so negative all the time! It's sad!

[hypnotoad72]

Quite. Reasoned thinking beats the gloom and doom waffle ANY day of the week.

Worse, if the tighty-lefties whine and gripe about things, if they can't do anything to back it up, why listen? Things will work out and America will get back on its feet.

[dolphy]

Then you're agreeing that economy's bad right now and it is sensible to complain, right?

[dolphy]

We're just looking at reality and not being stoned by the koolaid.

[Wiredwilly]

Somewhat like a passenger on the Titanic looking up at the stars.

[studlyguy]

Ignorance by Wall Street of what is going on in the real world is alwyas been the case just look at 1929 for examples,sorry the ship has sailed and the abyss is the course,so be prepared.