Fed cuts rates by half a percentage point
The Federal Reserve (Fed), responding to signs of a slowing economy, cut its benchmark interest rate by 50 basis points (half a percentage point) on Wednesday, stimulating a much-needed rally in the stock market. The rate cut came in between the Fed's scheduled meetings, and marked the fourth half-point cut in rates since Jan. 3, 2001 and second intra-meeting rate cut this year.
"Capital investment has continued to soften, and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward," said the Fed.
Wednesday's rate cut brings the federal funds rate (the target rate on overnight loans between banks) down from five percent to 4.5 percent. The Fed's discount rate on loans to banks was also reduced to four percent from 4.5 percent.
"It was a big, big sigh of relief," said Stanley Nabi, managing director of Credit Suisse Asset Management. "Investors - professional, as well as individual - were hoping for this kind of news... and when it came, they responded very, very positively."
The technology-heavy NASDAQ Composite Index Wednesday jumped 156.22 points, or 8.12 percent, to 2,079.44, marking the index's fourth-biggest percentage gain in its 30-year history. Trading volume escalated to 3.1 billion shares, marking its second-heaviest volume ever.
The blue-chip Dow Jones Industrial Average climbed 399.10 points, or 3.91 percent, to 10,615.83, and the broader Standard & Poor's 500 Index gained 46.35 points, or 3.89 percent, closing at 1,238.16.
"I'm ecstatic," said Robert Armknecht, money manager at the $2 billion Galaxy Equity Growth Fund, in response to the Fed's rate cut. "It recognizes that the economy needs some further help. It gets some liquidity back in the system and it's reassuring to the public, not just to investors."
IBM reports solid first quarter results
International Business Machines Corp. (IBM), the world's largest computer maker, reported first quarter results on Thursday that confirmed the company's long-term goals. Shares of IBM rose $7.86, or more than seven percent, to $114.36, pushing the Dow into positive territory."IBM's first quarter was very solid," said Salomon Smith Barney analyst John Jones, who raised the price target for the stock from $135 to $150. "Results were strong in all segments and in virtually all product and services offerings."
IBM's reported net income rose to $1.75 billion, or 98 cents per share, compared with $1.52 billion, or 83 cents per share, a year earlier.
The Dow Jones Industrial Average was up 22.32 points, or 0.21 percent, at 10,638.15 in midday trade yesterday, held up by shares of IBM, but weighed down by such stocks as drugs, retailers, and manufacturers.
The broader Standard & Poor's 500 Index was up 7.72 points, or 0.62 percent, at 1,245.88.
The tech-heavy NASDAQ Composite Index gained 65.71 points, or 3.16 percent, to 2,145.15, led by Apple Computer Inc. (AAPL) and Siebel Systems (SEBL). Apple shares were up some ten percent, while Siebel was up almost 28 percent.
"For the moment, at least, the psychology has changed, and it looks like we're at least going to have a month or two of a fairly significant rally," said James Oberweis, president and portfolio manager at Oberweis Asset Management.
McDonald's reports drop in first quarter earnings
Fast-food giant McDonald's Corp. announced a 16-percent drop in first quarter earnings on Thursday, as hamburger sales in Europe declined following an outburst of animal diseases in the region. Weakening economies in some markets also damaged the company's results.McDonald's net income fell to $378.3 million, or $0.29 a share, from $450.9 million, or $0.33, a year ago.
"It continues to be an overhang on the stock," said Timothy Ghriskey, who heads value investing at Dreyfus Corp.
Shares of McDonald's (MCD) were up a penny at $27.50 in afternoon trading on Thursday.
