Broker earnings and Fed decision fuel rally at US Market

Federal Reserve cuts fed fund rate by 75 points thereby helping Dow to post largest gain in five years

Better than expected earning reports from a couple of broker firms and Federal Reserve’s decision to cut fed fund rate by another 75 bps to 2.25% fuelled a strong rally in the US Market today, Tuesday, 18 March, 2008. All ten of the major economic sectors finished in positive territory. Financials posted the most impressive gain.

Helping to lift the market since the very morning was better than expected earnings reports from Lehman Brothers and Goldman Sachs. Both the firms posted dismal results compared to last year, but stellar results compared to expectations. After this, the market turned its full attention to the 2:15 ET FOMC announcement.

At 2.15 pm E.T, the Federal Open Market Committee (FOMC) announced it is cutting the fed funds rate and discount rates by 75 basis points. That left the fed funds rate at 2.25% and the discount rate at 2.50%. Market’s immediate response was negative, although the indices still held strong gains.

Dow gave up 100 points immediately after Fed’s announcement. That was mainly because market was looking for a 10 bps cut. Anyway, market once again picked up momentum in the final hour of trading. The Dow Jones industrial Average ended the day with a gain of 420 points at 12,392. The Nasdaq Composite Index, finished higher by 91 points at 2,268. S&P 500 finished higher by 54 points at 1,330.

The Fed cited slowing growth in consumer spending, and a softened labor market. The statement also pointed out the continued strains in the financial markets. The Fed said inflation has been elevated and some indicators of inflation have increased.