The Federal Reserve decided today to leave its key interest rates alone.
But stocks rallied to their best levels in a month because of what the Fed said it would do: inject more than $1.1 trillion in a big bid to support the economy.
The package includes the purchase of up to $300 billion in longer-term Treasury securities over the next six months.
The Fed said it was making the move because the economy has continued to contract.
The euphoria gave way to some profit-taking and concern about the audacity of the move, however, and the gains were trimmed.
Still, the Dow Jones industrials closed up 91 points, 1.2%, to 7,487. Not bad considering that the blue chips had been down as much as 138 points in the afternoon and up 176 points in the afternoon.
The Standard & Poor's 500 Index closed up 16 points, or 2.1%, to 794, and the Nasdaq Composite Index was up 29 points, 2%, to 1,491.
The unanimous decision of the Federal Open Market Committee, the Fed's rate-making body, pushed interest rates sharply lower. The yield on the 10-year Treasury note was down to 2.53% at 3 p.m. ET from 3% on Tuesday. That's a decline of 15.8%, and Bloomberg News said yield was the lowest since at least January 1962.
The U.S. dollar, meanwhile, fell 3.4% against the euro, 1.5% against the British pound and 2.4% against the Japanese yen.
The Fed's move may unleash a new wave of mortgage refinancing because mortgage rates may move below 5%. Bankrate.com said the rate on a 30-year fixed-rate mortgage began the day at 5.2%.
A look at an audacious decision
The Fed's rate decision leaves the target for its key federal funds rate at 0% to 0.25%. The federal funds rate is what banks charge each other for overnight loans. It is the foundation on which rates on everything from corporate loans and many car loans are built.The Fed also left its discount rate -- the rate that the Fed charges banks for short-term loans -- at 0.5%.
In all, the Fed is spending more than $1.1 trillion with today's decisions to boost the economy: $300 billion in Treasury securities, $750 billion on mortgage-backed securities from Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) and $100 billion in debt of Fannie Mae and Freddie Mac.
The decision to buy Treasury securities was a surprise and an indication of the Fed's deep worries about the economy and weak housing markets around the country in the wake of the subprime mortgage crisis and one of the most severe recessions since World War II.
Most observers had expected the Fed to wait until its April 28-29 meeting to make the decision. The central bank, however, wants to promote home purchases as a way to soak up the big inventories of unsold new and existing homes.
The Fed's purchases of mortgage securities will bring its purchases for the year to $1.5 trillion. The debt purchase from Fannie Mae and Freddie Mac is in addition to $100 billion already committed.
The move is a classic example of "quantitative easing," the deliberate attempt by a central bank to expand the supply of money and credit.
Fed Chairman Ben Bernanke said in his "60 Minutes" interview on Sunday that he would do whatever it took to get the economy moving gain. Many agreed he delivered today.
While the move was "not a silver bullet," Nigel Gault of IHS Global Insight wrote clients today, it "increases confidence that the economy will bottom out in the second half of 2009 and that 2010 will see a resumption of growth."
But Peter Schiff of Euro Pacific Capital wasn't so cheery. The move "is great news for current holders of those instruments looking to bail out, but horrific news for just about everyone else, particularly long-term holders of U.S. dollars-based assets."
The market's best close in a month
The Dow's close -- its sixth gain in the last seven sessions -- was its best finish since Feb. 18. The S&P 500 and Nasdaq had their highest closes since Feb. 13.The market did run into serious resistance when the S&P 500 hit 803 at 2:50 p.m. ET. That was its intraday level since Feb. 17 and its 50-day moving average. That appeared to trigger selling that took 17 points off the index in the next 20 minutes. The Dow is up 15.7% from its intraday low on March 6; the S&P 500 is up 19.1%. The Nasdaq is up 17.8% from its March 9 intraday low.
Despite the gains, however, the Dow is still down 14.7% this year. The S&P 500 is down 12.1%, and the Nasdaq is off 5.4%.
Today's rally was directly related to the Fed decision, but stocks have been moving higher in the last 10 days for three more reasons:
- A paucity of corporate earnings. First-quarter earnings season doesn't begin until next month, with results likely to be lousy. The big question is how the market will react to them.
- Stocks had become really cheap. Honest. The S&P 500 was trading at nearly 36% below its 200-day moving average on March 9, a gap not seen since November and the 1970s.
- A sense that stability is starting to emerge. This is especially true among financial companies.
Can the rally continue?
Maybe. Futures trading suggests stocks will open slightly lower on Thursday -- as they did today.Tech shares may get a boost from Oracle (ORCL, news, msgs). The database maker's shares moved 7.4% higher to $17 after hours on better-than-expected earnings and its announcement that it will pay a regular quarterly dividend of 5 cents a share -- its first since going public in 1986. The stock had risen 2.8% to $15.83 in regular trading.
Stock Charts (Year)
Oracle
FedEx
The government will report on leading economic indicators and initial jobless claims on Thursday.
The key earnings report: the third-quarter report from package delivery company FedEx (FDX, news, msgs), due before the market open.
The company is watched closely as a leading indicator about the economy. In December, CEO Fred Smith said the company was facing "the worst economic conditions" in the company's 35-year history. FedEx finished up 2.6% to $43.05 today but is down 32.9% this year.
Financial stocks lead market higher
The Fed decision accelerated a large rally in financial stocks, and the entire market came along for the ride.The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund, which tracks the financial stocks in the S&P 500, was up 10% to $9.41. The financial ETF is up 60% since its March 6 intraday low, and financial stocks, in fact, are leading the S&P for the month. It's the first time the group has led the index for a month in more than two years.
Citigroup (C, news, msgs) was the top-performing Dow stock, up 22.7% to $3.08, with Bank of America (BAC, news, msgs) in second place, up 22.3% to $7.67. They were also the seventh- and eighth-best S&P 500 stocks today.
General Electric (GE, news, msgs), which trades like a financial stock, was up 3.2% to $10.32, its first close above $10 since Feb. 19. Goldman Sachs (GS, news, msgs), up 6.3% to $105.25, had its first close above $100 since Oct. 24.
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Before the Fed's decision, the Nasdaq was higher on a report in The Wall Street Journal that IBM (IBM, news, msgs) may buy Sun Microsystems (JAVA, news, msgs), the maker of Java software and high-end server computers, for perhaps as much as $6.5 billion, or $10 to $11 a share. Sun was up 78.9% to $8.89, the top S&P 500 performer; IBM was off 1% to $91.95.
Energy shares, however, were falling back. Crude oil was down for most of the day on a government report of larger-than-expected domestic gasoline supplies. Crude finished at $48.14 a barrel in New York, down 2.1% from Tuesday. Wholesale gasoline fell 4.1% to $1.3657 a gallon.
Consumer prices rose 0.4% in February, the Labor Department reported this morning, higher than expected and the biggest gain since July. Energy prices rose 3.3% in February, and food prices fell 0.1% last month, the first decline in nearly three years. Core prices, which exclude volatile food and energy prices, were up 0.2% last month.
Twenty-three of the Dow stocks had gains on the day, along with 420 S&P 500 stocks and 80 stocks in the Nasdaq-100 Index ($NDX.X). The index, which tracks the largest Nasdaq stocks, was up 14.8 points, or 1.2%, to 1,207.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $48.14 | $49.16 | -$1.02 | 7.55% | 7.94% |
Heating oil (per gallon) | $1.2640 | $1.2747 | -$0.0107 | -0.15% | -10.08% |
Natural gas (per million BTU) | $3.6840 | $3.8120 | -$0.1280 | -12.24% | -34.47% |
Unleaded gasoline (per gallon) | $1.3657 | $1.4238 | -$0.0581 | 6.64% | 35.46% |
AIG CEO asks bonus winners to give the money back
American International Group (AIG, news, msgs) CEO Edward Liddy had a rough go on Capitol Hill this afternoon in the controversy over more than $165 million in bonuses.He did tell irate congressmen that he had asked the bonus recipients who received $100,000 or more to give back at least half. Quite a number have already given back all of the cash.
AIG paid bonuses of $1 million or more to 73 employees who had worked in the London-based division that caused most of AIG's deep financial problems. Eleven of these employees no longer work at the company, New York Attorney General Andrew Cuomo said Tuesday. Cuomo had subpoenaed the company for the bonus information.
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The bonuses have sparked outrage in Congress. More than a few legislators have discussed how the government might force AIG to rescind the bonuses, or might use taxes to effectively take the bonuses.
Stock Chart (Year)
AIG
"We have to continue managing our business as a business -- taking account of the cold realities of competition for customers, for revenues and for employees," Liddy said in prepared testimony. "Because of this, and because of certain legal obligations, AIG has recently made a set of compensation payments, some of which I find distasteful."
Liddy took the helm of AIG in September, when the company first teetered on the edge of implosion.
"As a businessman of some 37 years, I have seen the good side of capitalism," Liddy said. "Over the last few months, in reviewing how AIG had been run in prior years, I have also seen evidence of its bad side."
In a letter to Congress, Treasury Secretary Tim Geithner said the government would bring pressure, deducting the amount of the bonuses from the next $30 billion the company is to collect in aid.
AIG shares jumped 43.8% to $1.38, their first close above $1 since Feb. 10. The shares were the second-best S&P 500 performer.
More from MSN Money
IBM looks to expand server business
A deal for Sun Microsystems would help IBM extend its lead over Hewlett-Packard (HPQ, news, msgs) in the $53 billion market for servers.Sun had reportedly tried to shop itself to HP, but HP did not make a bid.
Stock Charts (Year)
Sun Microsystems
IBM
IBM gets most of its revenue from services, while Sun earns the most from hardware. The combined company would be very different from its parents, obtaining about a third of its income from hardware.
A deal could be announced this week.
Hewlett-Packard was down 2.6% to $28.99.
Bank of America makes more optimistic comments
Bank of America shares were moving higher today after CEO Ken Lewis said that he expects the bank to be profitable in 2009, barring another "unexpected meltdown" in the industry, The Charlotte Observer reported today.Lewis also said that it expects to pay back the $45 billion in Troubled Asset Relief Program funds it took from the government by the end of this year or early next year. The bank's chief also noted that B of A could repay the TARP funds now, if it were not maintaining a higher-than-normal capital cushion because of the difficult economic environment.
Darden beats the Street
Darden Restaurants (DRI, news, msgs) late Tuesday said that fiscal-third-quarter profit fell 15% to $107.5 million, or 78 cents per share, from $126 million, or 88 cents per share, in the same quarter a year earlier.Darden, which operates sit-down casual dining chains the Olive Garden, LongHorn Steakhouse and Red Lobster, has been hit hard during the recession, as Americans have sacrificed dining out to save money.
Stock Chart (Year)
Darden Restaurants
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Still, Darden managed to top Wall Street's estimate of 68 cents per share; shares were up or 20% to $35.87.
The company also boosted its 2009 forecast; it expects earnings-per-share growth of 1% to 4%, better than the previous guidance of a decline of 1% to 6%.
Andrew Rosenbaum contributed to this report.
| Wed. | Tues. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Treasurys | |||||
13-week Treasury bill | 0.205% | 0.225% | -0.020 | -18.00% | 78.26% |
5-year Treasury note yield | 1.515% | 1.973% | -0.458 | -25.00% | -2.32% |
10-year Treasury note yield | 2.533% | 3.003% | -0.470 | -16.71% | 12.88% |
30-year Treasury bond yield | 3.572% | 3.804% | -0.232 | -4.03% | 32.74% |
Currencies | |||||
U.S. Dollar Index | 84.980 | 87.345 | -2.365 | -3.60% | 3.44% |
British pound in dollars | $1.4259 | $1.4049 | 0.0210 | -0.44% | -3.22% |
Dollar in British pounds | £0.7013 | £0.7118 | -0.0105 | 0.44% | 3.33% |
Euro in dollars | $1.3472 | $1.3021 | 0.0451 | 6.24% | -3.84% |
Dollar in euros | € 0.7423 | € 0.7680 | -0.0257 | -5.87% | 3.99% |
Dollar in yen | 96.25 | 98.63 | -2.38 | -1.39% | 6.18% |
Canadian dollar in U.S. dollars | $0.803 | $0.788 | $0.0147 | 2.18% | -1.86% |
U.S. dollar in Canadian dollars | $1.247 | $1.270 | -$0.0231 | -2.14% | 1.90% |
Commodities | |||||
Gold | $889.10 | $916.80 | -$27.70 | -5.67% | 0.54% |
Copper | $1.7165 | $1.7240 | -$0.01 | 11.57% | 21.74% |
Silver | $11.9350 | $12.6700 | -$0.73 | -8.96% | 12.17% |
Corn | $3.8825 | $3.9150 | -$0.03 | 10.69% | -4.61% |
Crude oil (NYMEX) (per barrel) | $48.14 | $49.16 | -$1.02 | 7.55% | 7.94% |
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