Market soars after half-point rate cut
NEW YORK » A jubilant Wall Street barreled higher yesterday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half percentage point.
The Dow Jones industrial average surged more than 330 points after the Fed announced its move -- its biggest one-day point jump in nearly five years.
The central bank's decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market tightness, spawned by a continuum of mortgage defaults and delinquencies, would send the economy toward recession.
"What it says to me is you had a major shift in the last couple of months from a Fed that was very concerned about inflation to one that is concerned about the health of the financial markets, the availability of liquidity," said Jerry Webman, chief economist at Oppenheimer Funds Inc.
The Dow soared 335.97, or 2.51 percent, to 13,739.39. The last time it rose more than 300 points in one session was Oct. 15, 2002, when it gained 378 points. The blue-chip index is now only about 1.9 percent below its record close of 14,000.41 reached in mid-July.
The Standard & Poor's 500 index rose 43.13, or 2.92 percent, to 1,519.78. The Nasdaq composite index gained 70.00, or 2.71 percent, to 2,651.66. The S&P and the Nasdaq had their largest point gains since July 29, 2002.
Small-cap stocks, badly beaten during the market's summer turmoil, shot higher. The Russell 2000 index surged 30.82, or 3.97 percent, to 806.63.
Advancing issues outnumbered decliners by nearly 10 to 1 on the New York Stock Exchange, where volume came to 1.65 billion shares.
Shorter-term Treasury issues rose and longer-term bonds fell. The yield on the benchmark 10-year Treasury note finished little changed at 4.47 percent, the same as late Monday.
The dollar tumbled to a new all-time low against the euro after the rate cut, because lower rates make a currency a less attractive investment. Meanwhile, crude-oil futures catapulted further into record terrain, rising 94 cents to $81.51 a barrel, and gold prices rallied to a multi-decade high.
Meanwhile, the U.S. Labor Department's August producer price index was also more favorable than the market predicted. Wholesale prices fell 1.4 percent last month, the biggest decline in 10 months and led by a 6.6 percent drop in energy costs. Core inflation, which eliminates food and energy prices, rose by a mild 0.2 percent, as expected.
Lehman Brothers Holdings Inc., the nation's fourth-largest investment bank, posted a smaller-than-anticipated 3 percent decline in its third-quarter profits compared with a year ago. Lehman is the first of the major U.S. brokerages to report earnings from the most recent, tumultuous quarter. Other banks are due to report later in the week. Lehman rose $5.87, or 10 percent, to $64.49.
Retailers also advanced sharply, after Best Buy Co. Inc., the country's largest consumer electronics retailer said its second-quarter profit rose 8.7 percent, more than analysts expected. Best Buy rose $2.92, or 6.6 percent, to $47.46.