Stocks rise after Lehman, Goldman beat estimates; market expects big Fed rate cut
AP Business Writer
NEW YORK ” Wall Street barreled higher Tuesday as investors found relief in better-than-expected results from Lehman Brothers and Goldman Sachs, and anticipated a massive interest rate cut from the Federal Reserve. The Dow Jones industrial average surged more than 270 points.
Investors, while they’ve seen a number of huge advances amid the market’s recent volatility, appeared considerably more upbeat than in the past few days. They’re confident that when the Fed’s meeting lets out at 11:15 a.m. PDT, it will reduce the key federal funds rate by a full point, bringing it to 2 percent. The central has shown it is trying everything in its power to revive the stagnant credit markets and rescue the financial industry from collapse ” it already relaxed its lending practices, and has backed JPMorgan Chase & Co.’s buyout of failing investment bank Bear Stearns Cos.
Quarterly results from two rivals of Bear Stearns ” Lehman Brothers Inc. and Goldman Sachs Group Inc. ” also gave some solace to a market fearful about investment banks weakening further from losing bets on mortgage-backed securities. Both Lehman and Goldman posted quarterly profits that were significantly lower than they were a year ago but higher than analysts predicted.
There’s no telling, however, how the market will react to the Fed’s rate decision and accompanying economic statement. Anything less than a full-point cut could trigger frenetic selling, while anything more could rekindle the feeling that the credit markets and economy are in worse shape than Wall Street thought.
And meanwhile, the Fed’s statement will be closely read for signs that the central bank is still willing to lower rates and come up with new ways to free up cash in the financial system. Many market participants are unsure if more rate cuts will be enough to give the markets and the economy the stimulus they need; rate cuts also drive down the dollar, which in turn lifts commodity prices.