Wednesday, August 12, 2009

Markets Regain Positive Tone on Fed Rate Decision

It may not have been just what the Federal Reserve's Open Market Committee did or said so much as a general mood that they wouldn't do anything to upset the rather delicate balancing act currently underway in world markets.

The Fed, as expected, kept the Federal Funds rate at 0 to .25%, and the discount rate at .50%, said more about improvements in markets than deterioration and slipped in a line or two suggesting that there was no more need for further quantitative easing - they've pledged to buy up to $300 billion in Treasury notes - after the end of October.

For a change, markets were markedly higher prior to the 2:15 pm announcement and changed little afterwards, with stocks more or less drifting at sustained levels into the close. This shows that Fed chairman Ben Bernanke understands the fragility of the situation and is very cautious about how Fed actions are explained to the markets and general public. Nearly a year after the worst financial shock since the Great Depression, Bernanke's Fed has provided leadership and persistence to bring the US and world economies back from the brink of disaster. Whether it's black magic or shrewd understanding of economics, he deserves credit for at least righting a ship that had gone seriously off course.

The next step is to bring back GDP growth, and jobs, no easy tasks, though today's response on the financial markets seem to indicate that the mood of investing professionals has definitely turned the most positive since September of 2008.

Dow 9,361.61, +120.16 (1.30%)
NASDAQ 1,998.72, +28.99 (1.47%)
S&P 500 1,005.81, +11.46 (1.15%)
NYSE Composite 6,538.87, +75.25 (1.16%)

Bolstering the optimistic tone was a return to advancing issues dominating decliners, 4690-1770, More new highs than new lows, 126-53, and a slight uptick in volume.

NYSE Volume 1,306,697,000
NASDAQ Volume 2,154,837,000

Commodities seemed to appreciate the mellow tone of the Fed announcement. Oil gained 71 cents, to $70.16; gold marked $4.90 higher, to $952.50, and silver gained 24 cents, to $14.59.

The Fed decision was crucial for the market to retain confidence. Next up is a broad survey of retail sales on Thursday, with preliminary CPI figures due out Friday, along with Capacity Utilization and Industrial Production reports for July.

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