advertisement
Article Tools
| Currency | US Dollar |
|---|---|
| British Pound to US Dollar | 1.667222 |
| Euro to US Dollar | 1.489203 |
| Japanese Yen to US Dollar | 0.011121 |
| Canadian Dollar to US Dollar | 0.931880 |
If Ben Bernanke basically promised today that the Federal Reserve would cut interest rates in March, why did the morning rally run out of gas?
The short answer: Crude oil fell back, and the stock market hit strong resistance that wasn't Bernanke's making.
The stock market simply faded. At the close, the Dow Jones industrials were up 9 points to 12,694, their fourth consecutive gain. The Standard & Poor's 500 Index closed down 1 point to 1,380, but the Nasdaq Composite Index added 9 points to 2,354.
The Dow and S&P 500 are up 0.4% and 0.1%, respectively, for February after falling 4.6% and 6.1% in January. The Nasdaq is down 1.5% for the month after a 9.9% fall in January.
Bernanke strongly signaled that interest rates would move lower when he told the House Financial Services Committee this morning that "the economic situation has become distinctly less favorable."
The housing market is terrible, he said. The credit markets are a mess because many banks and lenders aren't willing to make loans. Economic growth has slowed. So has the job market.
What told the markets that interest rates are headed lower came when Bernanke said, "The risks to this outlook remain to the downside."
The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."
Most Fed watchers believe the central bank will cut its key federal funds rate to 2.5% from 3% at its March 18 meeting. The fed funds rate is what banks charge each other for overnight loans. Most U.S. loan rates are built using that rate.
Why the Bernanke rally ran out of gas
Lower rates should push stock prices higher. And that prospect pushed financial and home-building stocks higher. In addition, the regulator of Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) removed caps on growth for the two companies' loan and asset portfolios. Stocks of both companies moved higher.Technology shares rallied as well, as some beaten-down stocks such as Apple (AAPL, news, msgs) and Google (GOOG, news, msgs) moved higher. Apple rose 3.2% to $122.96. The stock added an additional 3.4% to $127.13 in after-hours trading after Tim Cook, the company's chief operating officer, told a Goldman Sachs investment conference that he had "really good confidence" the company could hit its oft-stated goal of selling 10 million iPhones by the end of the year.
Google, meanwhile, was up 1.9% to $472.86.
Stock Charts (Year)
Apple
Research In Motion
But the problem for the market overall was that profit-taking hit many commodities today, especially crude oil, which closed down $1.24 a barrel to $99.64 after topping $102 earlier in the day. Crude fell on an Energy Department report showing larger-than-expected domestic oil supplies.
When crude fell, energy stocks fell as well. Dow component ExxonMobil (XOM, news, msgs) finished off 0.6% at $89.39. Apache (APA, news, msgs) fell 0.9% to $113.55. Devon Energy (DVN, news, msgs), a big player in natural gas, fell 2% to $100.66.
At the same time, when the S&P 500 hit 1,388, which is its 50-day moving average, shortly before noon ET, it started to fall back. This is the second day in a row that the index has stumbled when it hit its 50-day moving average. It now appears that the moving average is functioning as a strong resistance level. And it means that many investors remain wary about taking on longer-term risks.
Metals prices, however, moved higher. Gold hit an all-time intraday high of $967.70 an ounce before closing at $961 on the day.
GDP report, more Bernanke and earnings on Thursday
Thursday brings more Bernanke testimony about the economy, this time before the Senate Finance Committee. But markets may pay more attention to the fourth-quarter gross domestic product report, which will come out before the market opens.The consensus estimate is for the report, which offers a snapshot look at the economy, will show a 0.6% gain.
In addition, a bevy of earnings reports will come out that will offer a picture of consumer confidence. These include reports in the morning from Kohl's (KSS, news, msgs), Revlon (REV, news, msgs), Sears Holdings (SHLD, news, msgs), Sprint Nextel (S, news, msgs) and Viacom (VIA, news, msgs).
After the close, personal computer maker Dell Inc. (DELL, news, msgs) reports.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $99.64 | $100.88 | -$1.24 | 8.60% | 3.81% |
| Heating oil (per gallon) | $2.7711 | $2.8150 | -$0.0439 | 9.34% | 4.59% |
| Natural gas (per million BTU) | $8.9300 | $9.2060 | -$0.2760 | 10.60% | 19.34% |
| Unleaded gasoline (per gallon) | $2.4777 | $2.5505 | -$0.0728 | 7.30% | -0.53% |
Inflation worries are growing
Bernanke's testimony came a day after the Labor Department reported a surprise jump in wholesale prices.Over the past five months, Bernanke and the Fed have lowered the federal funds rate to 3% from 5.25% in an effort to boost the sagging economy. Minutes from the Federal Open Market Committee Jan. 29-30 meeting, released last week, showed that the Fed would likely continue to lower rates if necessary.
But the lower interest rates, intended to stimulate economic activity, have raised worries about inflation.
Inflation has continued to be on investors' minds as energy and food prices have soared -- and even within the Fed, the debate persists as to whether the economy is threatened more by inflation or by a slowdown.
- Video: Big blue chips to buy
Last week, St. Louis Fed President William Poole cautioned that inflation is still a concern.
But Fed Vice Chairman Donald Kohn appeared disagree in a Tuesday speech when he said, "The adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States."
Another issue for the Fed to consider is the falling dollar. The dollar fell to $1.5132 against the euro by midday after falling through the key $1.50 level overnight for the first time. Then euro was at $1.5124 at 5:15 p.m. ET. The U.S. Dollar Index fell 0.7% to 74.265. It's down 1.7% this week and 3.2% this year.
More from MSN Money
Controls on Fannie Mae and Freddie Mac are loosened
Fannie Mae and Freddie Mac shares jumped initially but then faded after the Office of Federal Housing Enterprise Oversight said it is lifting the caps on the two companies' portfolios. The regulator said financial statements from the two companies were up to date.At 11 a.m. ET, Fannie Mae shares were up 17% but faded back to $27.27, a 1.1% gain. In after-hours trading, it rose 1.7% to $27.73. Freddie Mac had been up as much as 16.7% but closed down 12 cents to $25.09 and slipped back to $25 in after-hours trading.
The government, however, didn't lift a mandate that requires Fannie and Freddie to keep reserves for losses at 30% above the minimum legal requirement.
OFHEO Director James Lockhart said he will discuss with Fannie and Freddie a "gradual decreasing" of that requirement. But he noted that it has put the two companies in a better position to cope with "volatile market conditions and (Fannie and Freddie's) significant losses."
Meanwhile, Fannie Mae reported today a fourth-quarter loss of $3.80 per share, a plunge from the profit of 49 cents the government-backed company reported in the same quarter a year ago.
The results were also worse than analysts' expectations of a loss of $1.21 per share.
In a statement, CEO Daniel Mudd said, "We are working through the toughest housing and mortgage markets in a generation." Fannie Mae lost $2.63 per share for all of 2007.
The stock has dropped 53% over the past year.
Continued: Toll Bros. says there's too much recession talk
Rate this Article
High