TIM PARADIS
NEW YORK
Wall Street received the interest rate cut it wanted, but still turned in a baffling late-day performance Wednesday, shooting higher and then skidding lower in the very last minutes of trading as some investors rushed to cash in profits after the previous session’s big advance. The major indexes ended the day mixed, with the Dow Jones industrials falling 74 points – only the third time in October that the blue chips had just a double-digit close.
Analysts were divided over why the market turned around so abruptly. Some cited reports of a lackluster profit forecast at General Electric Co. – a Dow component that dropped nearly 4 percent from its late-session high – and others contended investors were simply looking to cash in gains after the Federal Reserve’s decision to lower its fed funds rate by a half-point to 1 percent.
“It was a panic sell in the last two minutes,” said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, referring to reports that GE was aiming at 2009 profits to be little changed from 2008. The reports were subsequently called into question, and a GE spokesman said the statements were taken out of context.
Because of the last-hour confusion, it was likely that it would take the opening of trading on Thursday to get a better read on how the market feels about the Fed’s rate cut and its accompanying economic statement. At the same time, the Commerce Department’s expected reading on the gross domestic product for the third quarter will most likely shape trading.
The market waffled while it was still digesting the Fed’s afternoon announcement, then advanced for most of the final hour of trading. Until shortly before the close, it looked like Wall Street was feeling more confident about the economy and would extend its huge rally from Tuesday, which propelled the Dow Jones industrials up nearly 900 points.
Policymakers spelled out a weakening of economic conditions in the U.S. and abroad, citing first a drop in spending by American consumers. The Fed also reiterated that it expects government steps, including its own efforts to increase liquidity, to improve credit market conditions and the economy over time.
Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, said the Fed’s overall tone conveyed it regards the economic troubles as somewhat typical of a weak economy and not the kind of intractable problems that signal a deep recession is imminent.
“They more or less indicated elevated concerns about the economy but nothing in it suggests any real panic but that this is just one more step in their program to restore the financial system to complete functioning.”
But the final hour of trading on Wall Street over the past month has seen turnarounds in sentiment as well as prices, and the late-session volatility that has become the norm was in force again Wednesday.
“We set ourselves up in the last hour with a golden opportunity to lock in profits,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher.
He said that very late in the day, more investors were putting a somewhat downbeat spin on the Fed’s statement, which Larson said indicated policymakers are willing to lower the fed funds rate below 1 percent if necessary. Traders started thinking, “if they’re willing to go under 1 percent, there must be serious problems that we don’t know about yet,” he said.
The Dow was up as much as 298 points in the last quarter hour of the session, giving it a two-day gain of more than 1,187 points, when it began to slide. It closed down 74.16, or 0.82 percent, at 8,990.96. During the 21 trading days so far this month, the Dow has logged gains or losses of fewer than 100 points only twice – on Oct. 1 and Oct. 14; the month has seen unprecedented volatility, with the blue chips recording their largest ever advance, 936 points, and their largest ever decline, 778 points.
Broader stock indicators were mixed. The S&P 500 index fell 10.42, or 1.11 percent, to 930.09, and the technology-heavy Nasdaq composite index advanced 7.74, or 0.47 percent, to 1,657.21.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume totaled 7.01 billion shares compared with 6.93 billion shares traded Tuesday.
Some traders expressed frustration at the market’s finish.
“You cannot have moves like this and have any sort of investor confidence,” said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
The credit markets had a lukewarm response to the Fed move. The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, fell to 0.58 percent from 0.74 percent Tuesday. A drop in yield indicates an increase in demand. Meanwhile, the yield on the benchmark 10-year Treasury note rose to 3.86 percent from 3.84 percent late Tuesday.
Light, sweet crude rose $4.77 to settle at $67.50 a barrel on the New York Mercantile Exchange as the dollar fell against other major currencies. With many commodities priced in dollars a weaker greenback makes prices rise.
It was clear from Wednesday’s trading that Wall Street is nowhere near moving away from the volatility that has devastated stock prices this month. And many investors are hesitant to re-enter the market after being hit hard – even with Tuesday’s jump, the three major stock indexes are still down more than 30 percent for the year, battered since last month’s freeze-up of the credit markets. The troubles with the credit markets have made it harder and more expensive for businesses and consumers to get loans.
While signs have emerged that the government action to revive credit markets is starting to work, investors remain skittish over the effects of the prolonged credit freeze on the economy, which relies on lending to feed growth.
Investors are hoping the latest rate cut will complement the government’s still-unfolding efforts to aid the commercial paper market, where companies turn for short-term loans, and the banks themselves. The Treasury Department this week is investing directly in banks, hoping the cash will make them more likely to issue loans.
Wall Street’s rally Tuesday helped lift trading in most markets overseas. Japan’s Nikkei stock average jumped 7.74 percent. Britain’s FTSE 100 rose 8.05 percent, Germany’s DAX index slipped 0.31 percent, and France’s CAC-40 rose 9.23 percent.
