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Stocks unsteady after surprise rate cut
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Specialist Charles Jenness rubs his head as he works at his post on the floor of the New York Stock Exchange Tuesday. The Dow Jones Industrial Average, down 465 points shortly after trading began, recouped most of its early losses. – AP Just before the opening bell rang out Tuesday on Wall Street, the Federal Reserve cut a key interest rate more than a week earlier than expected, a move that spiked fears of a recession and sent the stock market plummeting. Two minutes after trading began, the Dow Jones Industrial Average had fallen about 465 points. But the market recovered most of that loss by midday Tuesday, ending the day down 128 points, or 1.06 percent. The Fed lowered the federal funds rate, the interest rate at which banks lend to each other, by 75 basis points to 3.5 percent. A cut had been widely expected at the Fed’s meeting next week. Also Tuesday, President Bush said he was confident Congress and the administration will be able to approve a stimulus package to jump-start the economy and calm fears of recession that have shaken financial markets worldwide. The president has broadly outlined a stimulus plan that would include tax cuts for individuals and businesses. Bush said any plan, to be effective, would need to represent roughly 1 percent of the gross domestic product, or about $140 billion to $150 billion. Local investors and economists said the Fed cut was made sooner than planned to calm nervous, less experienced overseas investors. “Actually, the world isn’t falling apart,” said Joel N. Morse, a professor of finance at the Merrick School of Business at the University of Baltimore. “They wanted to give the world the message that they’re following this and they’re not going to let the banking system fall apart,” Morse said. “I think it was successful today.” The fact stocks recovered from their plunge was a positive sign, but some economists and analysts said a full recovery wasn’t likely in the near term. “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.” R. Saxson Birdsong, president and director of investments of Baltimore-Washington Financial Advisors, said his office had received many calls from investors, but few were panicking. “The majority of the calls that we’ve had have said, ‘Don’t sell anything here,’ ” Birdsong said. “The second-most-frequent call … is, ‘When are you going to start buying?’ The third-most is asking for reassurance.” Stocks have been beaten down amid the mortgage and credit crises. The Dow is down nearly 10 percent since the beginning of the year — logging its worst-ever first 14 trading days of the year. The Dow was created in 1896. The Associated Press contributed to this article. acahall@baltimoreexaminer.com acannarsa@baltimoreexaminer.com |