U.S. equities fluctuated in early trading today after the Federal Reserve and other central banks slashed interest rates to combat the credit crunch that is threatening global economic growth.
The Dow Jones industrial average was down more than 60 points, or 0.6%, in early trading, and the S&P 500 rose just more than 1.5 points, or 0.16%. On Tuesday, the Dow had closed at its lowest level since August 2003 and the S&P 500 closed below 1,000 for the first time since September 2003.
Before the open, the Federal Reserve cut the federal funds rate to 1.5% from 2%, while the European Central Bank, the Bank of England, the Bank of Canada and Swedens Riksbank lowered their rates by a similar half-point. The Fed also lowered the discount rate to 1.75% from 2.25%.
The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability. Some easing of global monetary conditions is therefore warranted, said a joint statement by the five central banks and the Swiss National Bank, which moved to lower short-term market rates as well.
Foreign bourses were mired in red ink, and U.S. stock futures pointed to another steep sell-off on Wall Street ahead of the announcements. But markets soon seesawed between fresh losses and short-lived gains as more countries announced massive capital injections to shore up their banks, which was seen as a gauge of the depth of the lending crisis.
Financials remained weak. Bank of America Corp. shares continued their retreat after lackluster demand for its $10 billion note offering, while Merrill Lynch & Co. Inc. shares fell on analysts forecasts that it will post losses for 2009. The two firms are merging.
The Fed and the Treasury Department may have done about all they can do. It may be time for fiscal solutions, said Richard Bernstein, chief investment strategist at Merrill Lynch, in a research note today to clients.
On Tuesday, Fed Chairman Ben Bernanke had warned that the outlook for economic growth had worsened, signaling that lower rates were in the cards. But he did not indicate whether the move would take place before the Feds next policy meeting Oct. 28-29.
Elsewhere, Chinas central bank eased market rates by 0.27 point in the second such move this month, while the Bank of Japan expressed support for the coordinated moves, after the Nikkei 225 index lost 9.4%, its steepest plunge since the market crash of 1987. Russia, where the stock market was again closed due to widespread sell-off, pledged $36 billion to shore up its banking system.