Stocks Enjoy Their Biggest Two-Day Rally in Five Years

From Staff Reports

U.S. stocks experienced their biggest rally in five years yesterday (Wednesday), as browbeaten investors seized on Federal Reserve Vice Chairman David Kohn's suggestion that another rate cut could be in the offing.

The Dow Jones Industrial Average soared 331 points, or 2.56%, to close at 13,289.45 yesterday. Combined with a 213-point rally Tuesday, the 30-stock Dow jumped 544 points, or more than 5%, over the two-day period.

The Dow closed at 12,725.39 last Wednesday, and is up 4.43% since then.

The Standard and Poor's 500 Index climbed 40 points yesterday, or 2.86%, to close at 1,462.09. It's climbed 59.43 points from its Monday close. The Nasdaq Composite Index was up 82.11 points yesterday, or 3.18%, after a 23-point surge Tuesday. 

"The degree of deterioration that has happened over the last couple of weeks is not something that I personally anticipated," Kohn, the Fed vice chairman, told his audience at the  Council of Foreign Relations. 

Kohn, the Fed's No. 2 official, said the central bank needs to be "nimble" and can't risk threatening the economy just to teach speculators a lesson. The policymaking Federal Open Market Committee (FOMC) will have to take a good look at the current market conditions and future vulnerabilities at its next meeting, currently set for Dec. 11.

"Kohn's comments just add to the perception that the Fed is embarking on a sustained path of easing," Michael Metz, chief investment strategist at Oppenheimer Holdings Inc., told Bloomberg News. "There's also huge relief that the worse of the financial crisis may be behind us."

Chris Rupkey, Chief Financial Economist at Bank of Tokyo-Mitsubishi UFJ, said the Fed more or less gave the green light to a rate cut.

"Restrictive credit costs will very likely lead to a dramatic slowing of the economy if the Fed doesn't take steps to forestall them," he told Bloomberg

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