Tuesday, December 16, 2008

Wall Street jumps ahead of the Fed

Stocks rose Tuesday morning as investors shrugged off a report showing a big drop in home construction and looked to the Federal Reserve - expected to cut interest rates to historic lows this afternoon.

The Dow Jones industrial average (INDU) rose 0.7% in the early going. The Standard & Poor's 500 (SPX) index gained 0.9% and the Nasdaq composite (COMP) rose 1.4%.

Fed meeting: Central bank policymakers conclude a two-day meeting, with their decision on interest rates expected at 2:15 p.m. ET.

Economists believe the Fed will lower its benchmark funds rate to 0.5%, which would be the lowest level on record, from its current level of 1%.

As is often the case, the statement accompanying the rate cut decision will be of greater interest than the decision.

"The Fed is going to throw everything they have to not only reverse market psychology, but reverse the downward decline in economic activity," said Peter Cardillo, analyst for Avalon Partners.

He said the Fed might also use unconventional methods to try and stabilize the economy, like buying Treasurys and corporate bonds. (Full story)

Goldman results: Goldman Sachs (GS, Fortune 500) posted a deeper-than-expected quarterly loss of $2.1 billion - or $4.97 a share - before the market open.

Goldman chief Lloyd Blankfein said "extraordinarily difficult operating conditions" led to the firm's first quarterly loss since it went public in 1999. Analysts had expected a loss of $3.73 per share, according to a survey by Thomson Reuters. Shares gained 4% in morning trading.

Best Buy: Electronics retail giant Best Buy (BBY, Fortune 500) topped analyst estimates, reporting earnings of 35 cents a share. That is down from 53 cents a share a year ago, but well above the 24 cents a share anticipated by analysts, according to a Thomson Reuters poll. Best Buy shares gained 12% in the morning.

Economy: A key inflation gauge - the Consumer Price Index - fell 1.7% in November, the largest monthly decline on record.

Economists had expected the CPI to drop 1.3%, according to analysts surveyed by Briefing.com. The CPI dropped 1% in October.

The core CPI, which does not include volatile energy and food prices, held steady in November and was 2% higher on a 12-month basis.

Housing: The Commerce Department reported a record low annual rate of 616,000 building permits for November. Analysts had expected 700,000 starts, according to Briefing.com. Housing starts declined to a record low annual rate of 625,000.

World markets: Global markets were mixed. Japan's Nikkei index ended the session with mild losses. Major exchanges in Europe were higher in morning trading, with major indexes in London, Paris and Frankfurt increasing about 1%.

Oil and money: Oil prices rose $1.46 to $45.97 a barrel on the New York Mercantile Exchange. The dollar declined versus the yen, the euro and the British pound.

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