Stocks dive, then rebound after Fed cut
Updated: 2008-01-23 09:02
The market pulled back a bit from its steep plunge -- the Dow had fallen 277 points on Tuesday of last week, and 307 on Thursday. It was a positive sign, but economists and analysts said a full recovery was not likely in the near term.
"This is a cure for the wrong disease. It makes everybody feel good, but it's not going to have any ongoing benefit," said Daniel Alpert, managing director of Westwood Capital LLC. "We need to get ourselves out of a mountain of debt and overvalued properties."
The markets worry that consumers, who account for two-thirds of economic activity, are not in a position to spend the country back into solid growth. They have been cutting back rather than borrowing or spending more, even during the recent holiday season.
"People are up to their eyeballs in debt, and they're being asked to borrow more," said Mike Schenk, senior economist for the Credit Union National Association.
Interest rate reductions are one strategy the Fed has used in previous crises to help the economy recover. A rate cut tends to spur the economy by making it cheaper for businesses to borrow money.
It would also lighten the burden on individuals with credit card debt and with mortgages that have adjustable rates.
Still, the effect on Wall Street was not overwhelmingly positive: The Standard & Poor's 500 index, the broad market measure most closely followed by traders, fell 14.69, or 1.11 percent, to 1,310.50, while the Nasdaq composite index lost 47.75, or 2.04 percent, to 2,292.27.
Stocks have been beaten down for months amid falling housing prices and a mortgage crisis that began with a stream of failed home loans to consumers with poor credit.
|
|
|
||
|
||
|
|
|
|