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By Jennifer Yousfi
With a rate cut from the U.S. Federal Reserve seen as highly likely, world markets gained across the board today (Tuesday), reversing most of yesterday's losses. The U.S. markets were up at midday.
At noon today, all three major U.S. indices had posted gains. The blue-chip Dow Jones Industrial Average Index rose 77.72 points (0.63%), to trade at 12,461.61. The tech-laden Nasdaq Composite Index was up 3.18 (0.14%), reaching 2,354.44. And the broader Standard & Poor's 500 Index gained 6.77 (0.50%) to trade at 1,360.77.
In the U.S. markets, the Basic Materials, Capital Goods and Transportation sectors all posted strong gains.
In overseas trading early today, Japan's Nikkei index gained 390.95 points, a 2.99% gain. Hong Kong's Hang Seng index was up 238.19, a 0.99% increase.
That was a sharp reversal from yesterday (Monday), when Asian markets endured steep losses across the board on spiraling fears of a U.S. recession and how that downturn might affect Asian exports into the U.S. market. On Monday, the Tokyo-based Nikkei stock average was down 3.97%, while Hong Kong's Hang Seng index lost 4.25%.
But a weak housing report from the U.S. Department of Commerce yesterday – stating that sales of new U.S. single-family homes plummeted a record 26% in 2007 [which caused builders to slash prices by the most since 1970] – only fueled optimism that the policymaking Federal Open Market Committee (FOMC) would move to cut short-term interest rates tomorrow (Wednesday), after the conclusion of its two-day meeting.
A week ago today – in a surprise move made before the U.S. markets opened –, its single-biggest reduction in nearly 25 years.
Anticipation that U.S. Federal Reserve Chairman Ben S. Bernanke will again move to cut the benchmark Federal Funds Rate – this time by as much as half a percentage point – drove U.S. stock prices higher yesterday (Monday). And that bullishness spilled over into the Asian and European markets today, and the carried over into U.S. trading.
On the strength of better-than-anticipated durable goods orders, Boeing Co. (BA) and Caterpillar Inc. (CAT) both climbed in morning trading. The Dow Chemical Co. (DOW), American Electric Power Co. Inc. (AEP) and Valero Energy Corp. (VLO) gained after releasing well-received earnings reports.
"When you see a durable goods number like this and then earnings outside of the financial sector doing quite well, people are beginning to realize that perhaps the contagion effect may be somewhat limited," Damon Barglow, of Boston-based Eastern Investment Advisors, said in an interview with Bloomberg Radio. "[The market] is realizing that there is a lower probability of a recession," he added.
The FOMC is meeting today and tomorrow, and these positive developments could serve to complicate their decision-making. With investors anticipating a rate cut of 0.50%, anything less could be seen as a disappointment and could cause stock prices to plummet.
Trading was light as the markets wait to see which way the Fed will move.
News and Related Story Links:
U.S. Stocks Rise After Earnings, Durable Goods Top Forecasts.
- Money Morning:
Fed Fans Optimism and Fears With Surprise Rate Cut.