Stocks close higher after volatile trading session
NEW YORK - Wall Street finished an extremely volatile session mostly higher today after investors, still jittery about mortgage-related problems at the nation’s major lenders, decided to interpret comments from the Federal Reserve as suggestive of another interest rate cut.
The Dow Jones industrial average rose 51.70 to 13,010.14, after making 100-point swings in either direction during the day. The eventual gain followed Monday’s swoon of more than 200 points.
Microsoft, one of the 30 Dow stocks, gained 62 cents to close at $34.58 a share. Boeing, also a Dow stock, fell 41 cents to $81.86.
Broader stock indicators also ended higher. The Standard & Poor’s 500 index rose 6.43 to 1,439.70, and the Nasdaq composite index rose 3.43 to 2,596.81.
In minutes from their Oct. 30-31 meeting, Fed policymakers said their decision to lower rates for a second straight meeting “was a close call.” But in a separate economic forecast, they pointed to slowing growth next year, an uptick in unemployment and moderating inflation - which would seem to portend a possible rate decrease.
Though the markets are pricing in a high chance of a rate reduction Dec. 11, when the Fed meets next, investors were on edge until the closing bell today, and the major indexes changed direction several times.
The dollar fell against most other major currencies but rose against the yen. Gold jumped.
Commerce Department data on the housing market gave investors a fuzzy picture of the housing market. The report said that while housing starts rose in October, building permits fell.
Freddie Mac posted a $2 billion quarterly loss today, escalating jitters about the government-sponsored mortgage lender and its larger counterpart, Fannie Mae. Also, an analyst downgraded Countrywide Financial, pointing to continuing credit problems that had investors uneasy even before the Fed released its minutes.
“The headlines that were really roiling the market were Countrywide, Fannie Mae, Freddie Mac, and the [Fed] minutes, which were discouraging for investors,” said Joe Sunderman, vice president of financial market analytics at Schaeffer’s Investment Research.
Countrywide’s downgrade spurred market speculation that it might file for bankruptcy, which the company later denied. After plunging by more than 20 percent, Countrywide shares ended down 29 cents, or 2.7 percent, at $10.28.
“When there’s lot of uncertainty in the market, the rumor mill runs full speed ahead,” said Peter Cardillo, chief market economist at Avalon Partners. Some market participants had also speculated in pre-market trading that the Fed might hold an emergency meeting to cut rates.
Meanwhile, oil prices surpassed $98 a barrel today, raising concerns that inflation may not moderate as the Fed anticipates.
Investors want lower rates because they loosen up the credit markets and encourage corporate growth - which has slowed recently because of the bad bets financial institutions have made on mortgages and mortgage-backed assets.
The major stock indexes remain higher on the year, and Wall Street is desperately hoping they don’t fall further. However, an end-of-the-year rally is looking remote, given that stronger economic growth and a rate cut tend to be mutually exclusive.
“The stock market obviously likes when the Fed lowers rates, but maybe they’re coming to grips with the fact that there’s a reason why,” said Joe Balestrino, a portfolio manager at Federated Investors.