Capital Gold Group Report: Stocks Dive, Then Rebound After Fed Cut
Investors are pulling out of the market and sitting on piles of cash -- but those money markets are earning barely enough interest to offset inflation. By converting those liquid assets into physical gold, they can protect and preserve the buying power of those declining dollars. By MADLEN READ 01.22.08, 6:23 PM ET
The opening bell hadn't even sounded on Wall Street when the Federal Reserve announced an emergency interest-rate cut. The Dow Jones industrial average fell 465 points - including 300 in the first minute - then rebounded to finish down a more bearable 128.
The recovery Tuesday was a victory of sorts for a battered market. But a long-term comeback may depend on factors much more difficult to achieve - a turnaround in the housing market and renewed confidence among U.S. consumers, who hold up most of the economy.
The alarming early drop in U.S. stocks followed the lead of markets abroad, where investors fled stocks and sent indexes plummeting on fears of a U.S. recession that could spread to other global economies. . . .
By the close, the Dow had recovered to a loss of 128.11, or just over 1 percent, at 11,971.19.
Before trading began, the Federal Reserve moved to slash its benchmark federal funds rate by 0.75 percentage points, to 3.5 percent. It was the widest cut since 1990, the beginning of what the Fed says is a comparable period in the way it handled the rate. . . .
The Dow is down nearly 10 percent since the beginning of the year - logging its worst first 14 trading days of the year ever. It is down more than 15 percent since its record close of 14,164.53 on Oct. 9, and is at its lowest close since Oct. 17, 2006.
Investors are well aware that housing worries remain: Many adjustable-rate mortgages - similar to those that went bad last year - will still be adjusted higher, and home prices are expected to keep falling this year.
Financial companies have lost billions of dollars because of those mortgages, retail sales are falling and companies in general aren't on a spending spree.
Investors, both institutional and individual, are also in a defensive mode, and an interest cut won't immediately change that. In the week ended Jan. 15, when many on Wall Street believed a rate cut was in the offing, investors shoveled money into cash reserves at a record pace, according to iMoneyNet. Assets in money market funds ballooned by $15.96 billion to a high of $3.17 trillion.
And investors pulled an estimated $18.2 billion out of mutual funds, according to TrimTabs Investment Research. So far this year, investors have shifted $41.4 billion out of these investments. . . .
