Wall Street holds gains on hopes of Fed cut
EmptyNEW YORK -- Wall Street rose sharply Tuesday as investors grew more confident that the Federal Reserve will lower interest rates next week, even after its chairman gave no clues about the central bank's intentions. The Dow Jones industrials rose 180 points.
Traders had been hoping Fed Chairman Ben Bernanke would give some indication during a speech to Germany's Bundesbank about the Fed's next move. Wall Street is looking for a rate cut to help bolster the U.S. economy and ease problems caused by tightening credit availability.
Instead, Bernanke talked about the need for countries around the globe to cooperate toward economic stability. He said "global imbalances" occur when countries run up trade deficits or produce big trade surpluses.
"Bernanke didn't really say anything about interest rates, but at this point the feeling on Wall Street is that it's mandatory," said Steven Goldman, chief market strategist, Weeden & Co., speaking about a rate cut. "At this point, the market is pricing in not just one rate cut, but a couple, and that's helping to stabilize stocks."
The stock market has been volatile since midsummer, with jitters high about the sluggish housing market and debt aversion causing a standstill in the credit markets and damaging the economy. Last Friday's jobs report, which showed the first monthly payrolls decline in four years, aggravated those concerns. Mark Zandi, chief economist at Moody's Economy.com, predicted the risk of a recession in the next six to 12 months has increased to nearly 40% from less than 15% before subprime concerns began riling the markets.
Investors nervous about the U.S. economy slipping into recession got a bit of relief from the Commerce Department's report on the U.S. trade deficit. The trade gap narrowed modestly in July to $59.2 billion from $59.4 billion in June, thanks to record exports of farm goods, autos and other products. Many economists had anticipated a widening of the deficit.
According to preliminary calculations, the Dow rose 180.54, or 1.38%, to 13,308.39.
The Standard & Poor's 500 index rose 19.79, or 1.36%, to 1,471.49, while the Nasdaq composite index rose 38.36, or 1.50%, to 2,597.47.