Dow soars 430 as Fed sees low rates into 2013

The blue chips plunge, then take off, after the central bank says a weak economy will keep rates low well into the future. Bank of America rebounds from steep losses. Apple's market cap briefly beats Exxon's.

By Charley Blaine Aug 9, 2011 12:51PM
Charley BlaineUpdated: 7:39 p.m. ET

Stocks shot higher today, with the Dow Jones industrials ($INDU) soaring 430 points, after the Federal Reserve signaled it sees a weak economy for some time to come and will keep interest rates at record lows for at least two more years.

The Dow's advance was its 11th-largest point gain ever.

The Fed's Federal Open Market Committee conceded that economic growth has been slower than expected. Labor markets are worsening, and household spending has flattened. Only business investment is showing any kind of strength.

The rally erupted because traders understood that low rates are great for stocks, great for commodities and great for longer-term assets like real estate. Let's change the phrasing. What the Fed wants is investment in the economy.

There are, however, two downsides: The result of the move means more speculation. And savers will be hurt by low rates.

Article continues below.
Wednesday's market looks to open higher, according to futures trading. It's not a big day for economic reports. But networking giant Cisco Systems (CSCO), department stores Macy's (M) and Nordstrom (JWN) and commercial printing giant Quad/Graphics (QUAD) are among companies reporting results.

An amazing rally -- helped by short-covering

The Dow closed up 430 points, or 4%, to 11,240, a recovery of more than two-thirds of the blue chips' 635-point loss on Monday. The blue chips had been up as many as 243 points in the morning and down as many as 206 points after the Fed announcement, as the huge volatility that has gripped U.S. stocks in recent weeks continued.

The Standard & Poor's 500 Index ($INX) was up 53 points, or 4.7%, to 1,173, pushing through what traders had identified as a resistance level at 1,150.

The Nasdaq Composite Index ($COMPX) was up 125 points, or 5.3%, to 2,483. Apple (AAPL) was one of the big fuels for the gain, rising 5.9% to $374.01.

As impressive as the Dow's gain was the big decline in interest rates. The 10-year Treasury yield fell to 2.182% from Monday's 2.339%. It was the lowest yield for the 10-year note since Dec. 30, 2008.

The dollar was 1.5% lower against the euro and 0.9% lower against the yen.

Financial stocks were the market leaders overall, with Bank of America (BAC) up 16.7% to $7.60, Citigroup (C) up 13.9% to $31.82 and Hartford Financial Services (HIG) up 15.5% to $20.38. But all 10 sectors of the S&P 500 were higher.

Much of the rally was almost certainly short-covering. That's traders buying back shares that they had sold short earlier. Some of the short-covering was probably profit-taking. The rest was panic by short-sellers scrambling to unwind their positions.

Because of that short-covering, it is not clear if today's rally will be long-lived. The economic outlook -- as the Fed said -- is weak for some time to come, and the Fed doesn't seem inclined to do more than it pledged to do today.

On Monday, the blue chips had fallen 635 points to 10,810, its sixth-worst point loss ever. The blue chips have lost more than 1,700 points since their July 21 close of 12,724.

The morning rally was signaled in the futures markets overnight when a projected 250-point loss for the Dow abruptly turned into a big rally thanks to rebounds in Asian markets.

Nearly 158 points of the Dow's rally today came from five stocks: Caterpillar (CAT), IBM (IBM), 3M (MMM), McDonald's (MCD) and Boeing (BA).

Gold jumps; crude drops
Gold (-GC) pushed as high as $1,782.50 an ounce before setting at $1,743. It was at $1,752.20 in electronic trading at 7:15 p.m. Silver (-SI) settled down $1.50 to $37.88 an ounce and was at $38.165 an ounce in electronic trading.

Crude oil (-CL) settled down $2.01 to $79.30 a barrel but bounced back nearly to $82 a barrel in electronic trading. The settlement price was crude's lowest since Sept. 29, 2010.

The national average retail price of gasoline was $3.652 a gallon today, AAA's Daily Fuel Gauge Report said, down from Monday's $3.663. It may be down 8.4% from its high of $3.985 on May 5, but it's still up 18.9% on the year.

Energy prices -- New York close



Tues.

Mon.

Month chg.

YTD chg.
Crude oil (-CL)

$79.30

$81.31

-17.14%

-13.22%
(per barrel)











Heating oil (-HO)

$2.7648

$2.8017

-10.70%

8.69%
(per gallon)











Natural gas (-NG)

$3.9940

$3.9350

-3.64%

-9.33%
(per mil. BTU)











Unleaded gasoline (-RB)

$2.6676

$2.6916

-12.76%

8.74%
(per gallon)











Brent crude 

$102.57

$103.74

-12.14%

8.25%
(per barrel)











Retail gasoline

$3.6520

$3.6630

-1.56%

18.88%
(per gallon; AAA)












What the Fed said -- and didn't say
The Fed's statement conceded that the economy has weakened considerably since its June meeting.

Jobs were the big concern: The FOMC said it "now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually."

Temporary issues, including the effect of high gasoline and food prices on consumer spending and disruptions from the March earthquake in Japan, "appear to account for only some of the recent weakness in economic activity."

Worse, the statement said, "Downside risks to the economic outlook have increased." Read that as meaning a recession is a possibility.

Traders did not get what they wanted: another round of Fed purchases of Treasury securities. The Fed has tried two earlier rounds of so-called quantitative easing. Both helped stocks. But there has been enormous debate over whether the easing helped the overall economy much.

The Fed was completely silent on whether it would look at a new round of purchases of Treasury securities, a strategy known as quantitative easing. The Fed has done two rounds of easing; the last, which ended on June 30, is often called simply QE3 Many Fed watchers believe one is coming.

Apple briefly is worth more than Exxon
The Fed's decision came as Apple briefly overtook Exxon Mobil (XOM) as the world's most valuable company by market capitalization.

The moment came at around 1:30 p.m. ET, when Exxon fell to $68.78 and Apple hit $369.89. That put Exxon's market cap at $334.3 billion, with Apple at $342.9 billion. 

Apple finished up 5.9% to $374.01. Exxon was up 2.1% to $71.64. That put Exxon's market cap at $348.2 billion, while Apple's was $346.7 billion.

Financials get some love
Drubbed on Monday (and over the last few weeks, for that matter), financials were among the leading S&P 500 sectors, along with materials and telecom stocks. The Financial Select Sector SPDR (XLF) exchange-traded fund was up 7.8% to $13.10 after falling to as low as $12.04. The ETF tracks the S&P 500's financial sector.

Bank of America was the top performer among the 30 Dow stocks. The shares had fallen 20.3% on Monday as the banking giant struggles with huge problems inherited in its acquisition of mortgage lender Countrywide Financial. The stock is off nearly 48% for the year.

In addition, a stagnating U.S. economy will curb revenue. The firm traded at 32% of its book value, the lowest among the 10 largest U.S. lenders, Bloomberg News said today, reflecting doubt about the true worth of Bank of America’s assets.


A big bias to the upside

All 30 Dow stocks were higher, led by Bank of America. The laggards were Cisco Systems (CSCO), which reports quarterly results on Wednesday, up 0.8% to $14.06, and Kraft Foods (KFT), up 1.5% to $34.22.


In addition, more than 490 S&P 500 stocks were higher, led by MEMC Electronic Materials (WFR), up 19.1% to $5.93, followed by Bank of America and Hartford Financial Services.


Ninety-nine stocks in the Nasdaq-100 Index ($NDX.X) were higher, led byLiberty Media (LINTA), up 14.3% to $14.49, eBay (EBAY), up 11.9% to $30.16, and Green Mountain Coffee Roasters (GMCR), up 11.3% to $99.49. The one loser was First Solar (FSLR), off 0.2% to $99.70.


Short hits from the markets -- New York close



Tues.

Mon.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.030%

0.020%

-66.67%

-75.00%
5-year Treasury note 

0.934%

1.092%

-31.97%

-53.67%
10-year Treasury note

2.182%

2.339%

-22.21%

-33.98%
30-year Treasury bond

3.573%

3.663%

-13.53%

-18.09%
Currencies











U.S. Dollar Index

74.724

74.938

0.93%

-5.76%
British pound

1.6324

1.6319

-0.67%

4.60%
(in U.S. $)











U.S. $ in pounds

£0.613

£0.613

0.67%

-4.40%
Euro in dollars

$1.44

$1.42

-0.17%

7.48%
(in U.S. $)











U.S. $ in euros

€ 0.695

€ 0.706

0.17%

-6.96%
U.S. $ in yen 

77.16

77.82

0.15%

-5.17%
U.S. $ in Chinese

6.45

6.43

-0.07%

-2.43%
yuan











Canada dollar

$1.022

$1.008

-2.39%

1.87%
(in U.S. $)











U.S. dollar 

$0.979

$0.992

2.45%

-1.83%
(in Canadian $)











Commodities

 

 

 

 
Gold (-GC)

$1,743.00

$1,713.20

7.04%

22.63%
(per troy ounce)











Copper (-HG)

$3.970

$3.962

-11.37%

-10.73%
(per pound)











Silver (-SI)

$37.8830

$39.3800

-5.54%

22.45%
(per troy ounce)











Wheat (-ZW)

$6.7175

$6.5650

-0.11%

-15.42%
(per bushel)











Corn (-ZC)

$6.7825

6.7525

1.92%

8.96%
(per bushel)











Cotton 

$0.9726

0.9901

-4.72%

-32.84%
(per pound)











Coffee

$2.3475

2.342

-2.00%

-2.39%
(per pound)











Crude oil (-CL)

$79.30

$81.31

-17.14%

-13.22%
(per barrel)










 

619Comments
Aug 9, 2011 2:33PM
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When are people going to realize that an economy based on borrowing cheap money and spending it on disposable goods made overseas is completely unsustainable?  This is madness.  We encourage people to spend and discourage them from saving.  70% of our economy is based on people spending.  WE NEED JOBS ****ES!   I don't need a cheap second mortgage so I can buy a new TV.  I need a decent paying, middle-class career.
Aug 9, 2011 3:08PM
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non-violent REVOLUTION - vote them out and make their successors accountable TO THE PEOPLE 

Federally-funded campaigns with low caps, even playing field (NO war chests); term-limits; get the special interests out; give America back to the people

 

to paraphrase T Jefferson - bankers are a greater threat to American democracy than standing armies

Aug 9, 2011 2:39PM
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It is a shame that this situation has occurred, our elected officials must be sitting in there elaborate homes, offices, country clubs where ever they are laughing at how stupid we are. They have run all of us, USA CITIZENS, to debt we will never see the end of. I for one am sick and tired of their antics. They work for us supposedly, so why can't we fire them? What would we have to do besides wait for election time to get rid of the ONES up for re-election. We would have to wait another 6 years to get rid of all of them and by then the ones we put in office in 2012 will be as bad as we have now.

There has to be a way to get rid of these inept / irresponsible PEOPLE that are drowning this country financially, morally, militarily and with the illegal aliens that by themselves are bankrupting states and overloading jails, hospitals, schools, and welfare roles.

Aug 9, 2011 2:40PM
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There it goes.  10 seconds after "Breaking News:  Fed leaves key rates unchanged"  the market drops 35 points and went into the hole.

 

So, yesterday, they said that Oil demands would be reduced due to economic conditions and that is why oil has dropped, what--15% or so this year so far (yet gas prices are way UP).  Then, the market goes UP and oil goes UP and they say "there is a shortage in current inventories."

 

So, when the market drops 200 points today after more selling, are we going to go back to the story of "shortage of demand" or "shortage of....  HONESTY AMONG THE CORRUPT GREEDY PIGS"

 

SEE-SAW.  SEE-SAW.  UP-DOWN.  UP-DOWN.   STEAL-TAKE.  STEAL-TAKE.

 

Boy, this is getting old.

Aug 9, 2011 1:47PM
avatar
This will not stop until nobody has a dime left.  How is it that gas is at almost $4.00 a gallon and yet my oil and gas mutual fund is almost worthless?  They call it the fault of speculators, but I think that all of these ups and downs are fixed to take all of the money from the small investors.  I am sick of hearing that the stock market has had a rebound when it fell 1100 points in two days and came back 200.  What kind of a rebound is that?  Do they think we are stupid?  When they talk about the fears that we are going into another recession they must also think we are stupid.  I don't see that we have ever come out of the recession.  This is a depression, people.  It started long before Obama.  I don't know what I am even putting money into my 401(k) for.  If I manage, through smart manipulation, to end up with anything, it will be taxed away in my retirement.  I might as well throw it into the wind.
Aug 9, 2011 2:16PM
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Wow, hard to believe that OPEC is foecasting high oil demand for the rest of the year despite the economic conditions in the US and Europe. These scumbags have lined their pockets for years off us and now that oil is dropping, they will do or say anything to support high prices which is one of the main reasons why our economy sucks in the first place. Hopefully some day, we can tell them to shove their oil where the sun does not shine.
Aug 9, 2011 2:54PM
avatar
Raise taxes on businesses that have outsourced in the past,  EXCEPT if they relocate parts of their business BACK TO THE USA where they can create JOBS....in that case I'm even in for more tax breaks for them.  That should get our economy going...
Aug 9, 2011 1:45PM
avatar
Once upon a time ago investing in a company meant backing what the company was in business to do - what it stood for - how it treated its employees and customers. Yes an investor wanted a return but knew full well it wasn't going to be instant or huge or means to en early retirement. 

Now it's just become another get rich quick scheme. 

It's saddening.
Aug 9, 2011 4:29PM
avatar

I am now throwing my hat and wallet into the ring...

 

I want to run for President in 2012    I am an unknown with NO party affiliation.

I have been a business man for 30+ years and have grown my business every year but one.

I will pledge to only run for one term, take no salary,use Air Force One only for real state business, I will raise revenue by creating a flat tax (except on food)....everyone pays according to their consumption.

I will tax internet purchases.  Everyone should be paying a Use Tax on what they buy on the internet now.  If not you are breaking the law.

I will subsidize mortgage rates to make them lower.  Fix the housing problem and everything else will fall in line, and everyone will have more expendable money.  This will put people back to work immediately building and manufacturing.

I will create a US Board of Directors to help make the best business decisions.

I will tax all companies on every employee they have overseas.  You cant have your cake and eat it too.

I will be blunt, to the point, say the hell with politics, forget about being politically correct (one term remember) and just get the job done.  Oh yeah, no teleprompters.  If It doesn't come from my mind its not worth saying.

 

Can I count on your vote?

Aug 9, 2011 2:08PM
avatar

Oh, brother.  Here we go.

 

The markets plunged because the SP downgraded USA credit rating to AA+.  One of the reason they cited was that Washington is more interested in bickering and playing the BLAME GAME versus acting like mature adults and do what they are SUPPOSED TO DO.   Yet, here we are today, "rebounding" and the Media acts like things are back to normal.

 

Is our credit rating AAA again?  Nope.  Have the stupid idiots in Washington stopped finger pointing with the " Mommy, he did IT"?  Nope.  So, NOTHING that caused the markets to drop on Monday has been fixed, and we're rebounding.  Can you spell:  M-A-N-I-P-U-L-A-T-O-R-S.

 

Bank of America is the leading stock at the time I wrote this.  Really?  With all of the downgrades, the very gloomy picutre painted about how it may not even have enough cash to fund operations with all of the upcoming losses plus the 10B lawsuit filled by AIG.  Yet, today, the sun is shining in the land of Bank of America and all of the REAL news from yesterday has gone *poof* with the wave of some mystic fairy's magic wand.

 

Wall Street is pathetic.  A bunch of crooks maniuplating the system with a bunch of lemmings publishing their stories in a lame attempt to give reason for what they are doing behind the scenes.

 

If everything from yesterday was truly responsible for the markets dropping, then I would expect the markets to still be dropping today.  None of the problems from yesterday have been fixed.

 

Oh, wait.  Now, it coudln't be that this was somewhat anticipated or planned because for the last few months, the market has done very little movement, so the people controlling the actions loaded up with short positions, then blurbed all of this out to the appropriate people causing a nose dive and a tarnish on the reputation of our country, then at the end of the day, they buy to cover their short positions, and laugh all of the way to the bank.

 

Do I really think that the rich, elite, money grabbing thieves would risk tarnishing the reputation of this country in order to stuff more money in their wallets?

 

You BET I DO.  If a CEO will lay off 10,000 workers in order to increase the bottom line so his bonus goes higher, they have proven they will do nothing to stand in the way of protecting their OWN finanical interests.

 

Aug 9, 2011 2:57PM
avatar
Is it posible for all these morons to stop talking? Every time they open their mouth the stock market takes a down turn.
Aug 9, 2011 3:00PM
avatar
well, yesterday obama comes out and as soon as he opened his mouth the market started to tumble worse, then today the fed's come along and open their mouth and boom there goes the bottom again, I've an idea for obama and the fed, shut your fricken mouth before were all broke and the markets at ten bucks
Aug 9, 2011 3:09PM
avatar
We need new headlines as these are depressing.  How about this:  "All politicians in Washington resign, Speculators quit as Oil is capped, Thousands on unemployment are hired to fill these vacant positions & then the Economy SOARS" 
Aug 9, 2011 1:20PM
avatar

The Federal Reserve Open Market Committee and old Bendover Bernanke are going to ride to the rescue of Wall Street and the banks again on the backs of the working middle class.  The Fed has the power to what ever it needs to "protect the economy" which means that the Treasury will issue more bonds to the banks, the Fed will buy back the bonds with interest and commission and the banks will use the money to pump Wall Street.  They did this with QE 1 & 2 and only helped 20% of the people, threw $4 Trillion into the market to get a $600 Billion return in GDP.  In the mean time he banks inflated the commodity market with the Fed money causing consumer prices to go up and further pushed the middle class down.  The Permanent Open Market Operations Funds will generate the same response and will do nothing for job creation or the economy, just make a bunch of fat cats fatter.  There was no organic growth in GDP only stimulus driven increases.

 

This market correction the last few days was overdue and it happens all the time.   If the Fed would stay the hell out of the situation the DOW will stay around 9,000-10,000 where it should be in all reality.

Aug 9, 2011 1:37PM
avatar

Here we ago again us Baby Boomers will subsidize interest manipulation. After forty years of being told how to invest and save, they will throw us under the bus to support these artificially low interest rates. Remember the instructions we got all these years, the closer to retirement the less risk you should take. So millions of us have our money were the sun shines no more. Actually what has happened to us is that the Fed has redistributed our earnings to who knows where.

 

I believe if us Baby Boomers were getting our fair share, we would be spending on real goods and services that actually can grow the economy.

Aug 9, 2011 1:25PM
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I just wonder how many at S&P sold their stock Thursday or Friday before the downgrade.

The rich is getting richer and the middle class is getting poorer.

Aug 9, 2011 2:32PM
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What a bunch of idiots the press has become; market up 28 points at the time great rebound.  Take the press out of the equation and the whole process might just be a whole lot better
Aug 9, 2011 5:07PM
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The last time oil was less than $85 a barrel gas prices were less than $2.50 a gallon.  

I don't know about your neighborhood but here its still over $3.50.

When the barrel price goes up a nickel our gas stations raise the price of a gallon by twice that amount within the hour...anybody want to guess how long it will be before we see $2.50 a gallon again?

Aug 9, 2011 2:46PM
avatar
( undoubtedly discussing what it can do to support the flagging economy )

The fed helps wall street, not the economy!
Wall street does bad the economy picks up a smudge.
Wall street does good, the economy goes back down the toilet.

STOP YOUR FREAK-IN' LIE'S!!!!
BUNCH OF CON-ARTIST CROOKS!!!!

Aug 9, 2011 3:05PM
avatar

The entire "debt ceiling" should have been a non issue. Both Parties should have adressed this LONG ago, but as usual, the childish, infantile, children of D.C. like to shake their rattles and stay close to the crib. Now fast forward to the actual near debacle. It seemed for a while that at least Obama and Boehner were willing to compromise, but the "extreme right wing" arm of the Republican Party, the "To Extinct America"(Copyright), (TEA) group, (they are Republicans and I REFUSE to call them a "party" of their own), decided they were the biggest babies in the entire "nursery", and thus we have what we have today. The final bill was a TOTAL JOKE, with what little debt relief there was, spread to the later part of the 10 year period, and thus having almost ZERO impact. When so called leaders decide to act as ours did, they end up with what we have now. They have ALL failed us on an UNACCEPTABLE scale. FIRE THEM ALL.!!!

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