Tuesday’s Market Recap: Major Indices Made Sizable Gains

The Federal Reserve met today as expected, but held U.S. interest rates at 2%, not cutting rates like many had expected as a result of Wall Street’s woes. Economists thought the Fed would cut rates because of our current market situation and not worry about inflation, which was a key factor for the Fed to keep rates at 2% from April up until now. The Fed reasoned, “Downside risks to growth and the upside risks to inflation are both of significant concern,” to the dismay of many economists. The Fed also noted concerns about our economy, stating, “Strains in financial markets have increased significantly and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters.”

Some Economists did agree with the Fed’s decision, noting that interest rates are already low and that a further rate cut would not have much effect as banks’ funds are already too depleted to increase loans. The Fed did however inject our financial system with $70 billion through open market operations Monday. The news hit the markets hard early in the session, but they were able to rebound nicely.

A day after the largest declines since the terrorist attacks of 9/11, the major indices all made sizable gains. The Dow Jones Industrial Average (^DJI) rose 141.51 points or 1.30% to close at 11,059.02. The Nasdaq (^IXIC) settled at 2,207.90, up 1.28% or 27.99 points. The S&P500 (^GSPC) rose 1.75% or 20.89 points to end today’s session at 1,213.59. The 10 Year Treasury note rose very slightly today to 3.4910.

Oil Prices continued to fall today, dropping $4.56 or 4.76% to settle at $91.15 a barrel. Crude oil has fallen over $10 in the past two days and over $55 since its record high of $147 back in July. For the year, oil is down 8%. The drop off in oil is attributed to Wall Street’s breakdown, the Fed holding interest rates, and a declining demand caused by our weakening economy. However, retail gasoline prices once again rose slightly, to a national average of $3.85 per gallon due to Hurricane Ike’s aftermath. Analysts expect retail gasoline prices to come down over the next few days and weeks as it adjusts to falling crude oil prices. We will have to keep a close eye on OPEC as crude oil has fallen below their “magic” $100 barrel mark.

The Dollar gained slightly on the Euro and Yen today, and is currently trading at 0.7064 vs. the Euro and at 104.93 vs. the Yen, which is somewhat surprising considering yesterday’s news. Gold Fell to $776.50 per ounce, falling $6.60 or 0.84% today.

In other financial news, Barclays Plc agreed to buy Lehman’s (LEH) main investment banking assets for around $2 billion stating that the deal would include Lehman’s core U.S. broker-dealer business, including equity, fixed income, M&A advisory and other assets. Also, as many as 9,000 current Lehman employees would be employed by the British Bank.

Some after the bell news today, shares of AIG (AIG) plummeted over 40% because of Bloomberg’s announcement that the government is considering conservatorship as an option for the insurer. Insurance companies are usually regulated by state governments, so federal agencies do not have the authority for such an action. It will be interesting to see how the story will play out during the session tomorrow.

Disclosure: None

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