Markets react to Fed’s third interest rate cut

NEW YORK (AP) — Most stock indexes rose Tuesday after the Federal Reserve cut interest rates again to guard against a recession.
The Dow Jones Industrial Average swung 173 points from an 82-point loss to a 91-point gain, but ended 24.97 lower at 8,986.28 after the Fed announcement at about 2:20 EST.
The central bank lending rate reduction, known technically as the federal funds rate, is the third since late September.
“We went through a massive correction this summer that was an expression of our worst fears,” said Joe Battipaglia, chief investment strategist at Gruntal & Co. “But one by one, each of those fears has been peeled back. We’re not having a recession and the financial system isn’t melting.”
The Dow’s short-lived rally lifted it above 9,100 for the first time since July 22, just five days after it peaked at 9,337.97 on July 17.
If not for Hewlett-Packard, which fell the equivalent of 24 Dow points, the blue-chip barometer would have essentially broken even for the day.
H-P’s shares slid 6 1/16 points to 60 1/16 following a quarterly report late Monday that exceeded most forecasts, but warned anew of the continuing impact of the economic weakness in Asia and Latin America.
While the prospect of more borrowing and spending was generally well received in the market, it was also hard to avoid the inescapable conclusion that the economic backdrop must be rather dire to merit such aggressive action. The last time the Fed embarked on such a course was in late 1991, when the economy was shaking off a recession.
“Obviously, the Fed knows more than you or I do,” said Thom Brown, market strategist at Rutherford, Brown & Catherwood in Philadelphia. “It’s an indication that the Fed is much more concerned than people were realizing about the whole global economic situation. This is not the time to get adventurous in the equity markets.”
Even though Tuesday’s rate cut was widely expected, stocks had sagged in advance despite the release of new inflation data that had seemingly validated the Fed’s aggressive stance.
Notably, recent reports had shown some resilience in the U.S. economy, raising concerns that more Fed rate cuts would fuel inflationary pressures. But the Labor Department reported Tuesday that inflation inched up just 0.2 percent in October after remaining unchanged in September.
“The Fed has the story right: that it’s not about fighting inflation, but keeping liquidity flowing and the economy moving,” said Battipaglia.
Financial stocks, which do better business when lending rates grow more attractive, led Tuesday’s advance. J.P, Morgan rose 3 3/8 to 106 7/8, American Express rose 2 7/16 to 99 3/8 and Citigroup rose 1 3/16 to 45 5/16 to lead the Dow advance. By contrast, investors sold consumer product names considered the safest bet in weak economic times: McDonald’s fell 2 13/16 to 69 3/8 and Procter & Gamble fell 2 1/16 to 89 7/16.
Despite the weak showing by H-P, several big-name technology shares also rallied. Among the big Nasdaq names, Intel rose 1 5/8 to a record 108 1/2 and Microsoft rose 3 1/16 to 111 7/8.