Thread: Dow closes up 4% after Fed news

Dow closes up 4% after Fed news

By Gary Strauss and Matt Krantz, USA TODAY
Updated 1h 38m ago

Wall Street closed sharply higher Tuesday after a fitful day of wild, heavy trading.

In its biggest one-day advance in two years, the Dow Jones industrial average managed to end the day up nearly 430 points to 11,239. The 4% gain recovered a large chunk of Monday's 634.85 point, or 5.5%, Dow decline.

The turn came after the Fed's Open Market Committee lowered its growth outlook for the economy and said it would maintain "exceptionally low" interest rates levels at least through mid-2013. The Fed's intial statements, however, drove prices down nearly 200 points to levels that spurred renewed buying.

Broader indexes, which also spent much of the day alternating between gains and losses, also began a late rebound, with the Standard & Poor's surging to close up 4.7% and the Nasdaq ending the day up 5.3%.

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The Fed noted that with prices on commodities such as crude oil falling, inflation had moderated.

After last week's USA's credit rating downgrade and mounting fears over the global economy in the wake of Europe's debt crisis, investors apparently were looking for positive market stimulators from the Fed.

"Nothing goes straight down. At some point , especially after a move like this, like a beach ball pulled underwater, it resists and goes back up. But that doesn't mean it stays up,'' says Doug Roberts, chief investment strategist for Channel Capital Research.

After nearly two weeks of selling which had stocks flirting with a bear market correction of 20%, bargain hunters stepped in early Tuesday.

"Stocks were cheap heading into the decline, and they just became cheaper," said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management. "As a long-term investor, that's what I like to see."

Overseas markets closed mixed earlier Monday, with Britain's FTSE up nearly 2%, but Germany's DAX off firtually flat. In Japan, the Nikkei lost 1.7%.

"Events in the U.S. are far more likely to turn markets some kind of more positive momentum than the political and currency mess in Europe,'' says Howard Wheeldon, senior strategist for London-based BGC Partners.

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Most strategists remained cautious ahead of the Fed meeting, noting that Tuesday's early gains were fueled largely by bargain hunters.

"I don't think we're entering a bear market. I don't think there's going to be a double-dip recession. There's enough good economic data out there. Companies' earnings have been solid,'' says Frank Fantozzi, head of Planned Financial Services. "Will we recover all this back in the next week? Unlikely. But this year, it's a strong possibility.

"If you're a long-term investor, even intermediate-term, making dramatic changes at this point isn't really healthy,'' he says. "If your investment options make sense to hold, you have to weather it.".

http://www.usatoday.com/money/markets/2 ... kets_n.htm

How to 'fix' a market
John Crudele
Last Updated: 1:20 AM, August 9, 2011

Posted: 12:00 AM, August 9, 2011

Relax, all Washington has to do is rig the stock market.

Yes, you heard me right: rig the market -- as in, make sure it doesn't go any lower and scare the hell out of all the good, conscientious investors who once again trusted Wall Street to do what was right by them.

Sure, it would be a black eye to the American way of life. We believe in free, fairly traded markets. But that was back when we were naive and thought that America would never lose its innocence, the Ryder Cup or its AAA bond rating.

O.K., you think I'm nuts. But consider this.

Word filtered out of Tokyo a few weeks ago that Japan had instituted what was being called a 1 percent rule. No government ever confirms this sort of thing (some still have their pride) but the rule is supposed to state that the Japanese government will prop up the stock market through the purchase of exchange traded funds if there is a 1 percent loss in a single trading session.

You still don't think we should rig our market, do you? Well, put your ear closer to the newspaper, and I'll let you in on a secret -- we probably already have. Lots of times.

Those quick turnarounds in the stock market in mid-2008, when the financial system was supposedly failing, were probably market riggings. And when the hedge fund Long Term Capital Management nearly sent the financial world into a tailspin in 1998, the stock market was probably propped up then, too.

The blueprint for this sort of hocus-pocus came from -- get really close to the page for this -- the Federal Reserve. Back in October 1989, a guy named Robert Heller, who had just quit his post as a Fed governor, suggested that the government should purchase stock index futures contracts to calm the markets in times of distress.

"The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," Heller wrote in an op-ed piece in The Wall Street Journal after saying the same thing in a little-noticed speech. "The stock market is certainly not too big for the Fed to handle."

It's hard to believe Heller would have made this bold suggestion without the Fed's unofficial permission.

At the same time the President's Working Group on Financial Markets was assembled. Those of us who cover this sort of thing affectionately know it as the Plunge Protection Team.

Ah, but here's the problem.

Heller suggested that the stock market be rigged before the Fed does all the dangerous things it has already done -- like adding too much liquidity to the monetary system. That, he said, would be a bigger mistake than forfeiting our innocence by propping up stocks.

A couple more days like yesterday, and the riggers will be at work.

john.crudele@nypost.com

John Crudele has been a financial columnist for the New York Post for the past two decades. Before that he was a columnist with New York Magazine, The New York Times, Reuters and various other publications. His columns have been syndicated around the country. He attended Syracuse University where he received his B.A. and he received his M.A. from New York University. He's appeared on TV and radio, and he teaches writing for the NYU School of Continuing and Professional Studies. Crudele gets his skepticism, nasty attitude and his wise mouth from growing up in Brooklyn. He believes that if you have money people will try to take it away from you, and tries to protect readers from that.

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