Interest-Rate Cut Helps Markets Rein In Losses Wall Street had plenty to worry about Tuesday: a huge global sell-off, fears of a recession. But after a surprise interest-rate cut, markets closed amid relief that the day's losses weren't worse.
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Interest-Rate Cut Helps Markets Rein In Losses

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Interest-Rate Cut Helps Markets Rein In Losses

Interest-Rate Cut Helps Markets Rein In Losses

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block.

It wasn't as bad as we thought it was going to be. When traders went to work on Wall Street this morning, there was plenty to worry about - the huge selloff in foreign stock exchanges, fears of a recession. But shortly before trading got underway today, the Federal Reserve announced a surprise cut in interest rates, helping to keep the losses relatively small considering. After plummeting early, the Dow regained some of the lost ground and finished down 128 points.

NPR's John Ydstie has the story on how it all played out.

JOHN YDSTIE: As the day broke on U.S. stock markets, fears of panic selling by U.S. investors were foremost. After all, they'd already weathered the worst January in U.S. stock market history. Futures Market suggested U.S. indexes could lost another 5 percent today on top of the 15 to 20 percent they'd lost since they peaked last October. Before the market opened, Secretary of the Treasury Henry Paulson tried to reassure investors in a breakfast speech to the Chamber of Commerce in Washington. He expressed confidence that the president and Congress shared a sense of urgency about passing an economic stimulus package to head off recession.

Secretary HENRY PAULSON (U.S. Treasury Department): I am optimistic that we can find common ground and get this done long before winter turns to spring.

YDSTIE: As Paulson continued his speech, an even bigger economic player made a move. Here's how it played out on the cable business channel CNBC.

(Soundbite of show "Squawk Box")

Unidentified Man #1: They have been hit themselves.

Mr. JOE KERNEN (Host, "Squawk Box"): This is live, let me break in here. Hampton Pearson live in Washington with breaking news.

Mr. HAMPTON PEARSON (Reporter, CNBC): Joe, the information we have is an announcement from the Federal Reserve. It has decided to lower its target rate by 75 basis points to…

YDSTIE: The Fed said it was making the three-quarters of a percentage point rate cut because of continued deterioration in financial markets and a weakening economy. It was the largest single cut since the federal funds rate became the Fed's principal tool for monetary policy, bigger than after 9/11 or the 1987 stock market crash.

Unidentified Man #4: No. Now that information does have…

YDSTIE: As the opening bell sounded, the market plummeted more than 460 points in the first few minutes despite the Fed's forceful action. But almost immediately, investors started clawing their way back. Just after 10:00 A.M., the Dow Jones Industrial Average had recovered about half its initial loss.

Ed Craig was on the trading floor at Jefferies & Company in Midtown Manhattan.

Mr. ED CRAIG (Managing Director of U.S. Cash Equities Trading, Jefferies & Company): We caught buyers very quickly, probably within the first five to 10 minutes. It seems everybody caught their breath, let the market opened, and then buyers came in.

YDSTIE: So at this moment, a little after 10:00 in the morning, you're relatively optimistic about today?

Mr. CRAIG: Not necessarily. I'm cautious, that's all. I mean, I would expect the volatility this swings to be great today.

YDSTIE: About a half-hour later at nearby Avatar Trading, day trader Peter Fidelhols(ph) stared at blinking lights on his computer screen but was holding back.

Mr. PETER FIDELHOLS (Day Trader, Avatar Trading): My experience has been that I'm not the most profitable on this type of days. So I'll wait for it to slow down a little and then I kind of get in.

YDSTIE: His colleague, Romeo Guerra(ph), approached the day quite differently.

Mr. ROMEO GUERRA (Day Trader, Avatar Trading): This is what us, day traders, momentum players live for. We live for the volatility, for the volume, for the action. You know, if you're scared of the market and scared of coming in, then this is not really for you.

YDSTIE: And Guerra was looking at some of the most distressed shares - stocks in financial companies that were participants in the subprime debacle.

Mr. GUERRA: I'm taking a look at Merrill, Lehman, JHG, Capital One. They've been in the news with all the subprime write-downs.

YDSTIE: Those stocks will be among those who benefit most from the Fed's big rate cut. Retailers will benefit, too, and their shares also helped the market recover today. Just before the market closed, Ed Craig of Jefferies & Company expressed relief.

Mr. CRAIG: I am pleasantly surprised that we are able to hold on to most of these gains. I think what you'll see - a lot of the bigger players digest the news. And even if it's a day later, then you'll have the bigger money come into the market the next day.

YDSTIE: In the end, the Dow finished down 128 points or about 1 percent. But that was 336 points above its low for the day. It's a testament to the market's problems that this outcome is viewed as something of a victory.

John Ydstie, NPR News.

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