NEW YORK – The Standard & Poor’s 500 Index and other benchmarks retreated from last night’s five-week high, as investor euphoria over the Federal Reserve’s interest-rate cut faded and the banking industry showed little reaction to the historic Fed action.
“Following interest-rate cuts, you always see an initial reaction and then you get back to your senses,” Joost Van Leenders, strategist at Fortis Investments in Amsterdam, told Bloomberg News. “All the structural indicators, such as the economic cycle and profit outlook, remain negative.”
The policymaking Federal Open Market Committee yesterday cut its target rate for overnight loans between banks to a range of 0 percent to 0.25 percent; said it would buy more mortgage debt and possibly Treasury securities to help bring down long-term interest rates; and pledged to use “all available tools” to reinvigorate the economy.
U.S. markets immediately surged on the announcement. The S&P 500 closed yesterday up 5.1 percent at a five week-high of 913.16 points; the Dow Jones Industrial Average rose 4.2 percent to 8,924.14; the Nasdaq Composite Index rose 5.4 percent to 1,589.89; and the Russell 2000 Index of small companies rose 6.7 percent to close at 482.85 points. (READ MORE)
Today, however, investors were more wary. Europe’s Dow Jones Stoxx 600 Index lost 0.7 percent today, and U.S. markets opened lower.
At 9:49 a.m. in New York trading, the S&P was down 0.8 percent for the day at 906.36 points; the Dow was down 60.05 points, 0.7 percent, at 8,864.09; and the Russell 2000 was down 0.3 percent, according to Bloomberg News.
The lending markets, meanwhile, have proven less volatile.
The gap between U.S. Treasury bill rates and the London interbank offer rate (Libor) – the rate banks charge each other for three-month loans – has narrowed to 1.55 points from October’s 4.64 points, Bloomberg reported today. But that gap, called the TED spread, is still six times as wide as in June last year.
Long-term mortgage rates also showed little change after the Fed announcement. The national overnight average rate for a 30-year fixed mortgage was 5.53 percent, down from 5.70 percent last week, while the overnight average for a 30-year jumbo loan was 7.09 percent, up from 7.05 percent a week ago, according to data from BankRate.com.
