As Freddie Mac Posts Huge Loss, Investors Cling to Hope for Rate Cut
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Wednesday, November 21, 2007
NEW YORK, Nov. 20 -- Wall Street finished an extremely volatile session mostly higher Tuesday after investors, still nervous about mortgage-related problems at the country's major lenders, decided to interpret comments from the Federal Reserve as suggestive of another interest rate cut.
The Dow Jones industrial average rose 51.70, or 0.4 percent, to 13,010.14, after swinging 100 points in either direction throughout the session. The Standard & Poor's 500-stock index rose 6.43, or 0.45 percent, to 1439.70, and the Nasdaq composite index rose 3.43, or 0.13 percent, to 2596.81.
In minutes from their Oct. 30-31 meeting, Fed policymakers said their decision to lower rates for a second consecutive meeting was "a close call." But in a separate economic forecast, they pointed to slowing growth next year, a rise in unemployment and moderating inflation, which would seem to portend another rate decrease.
Although the markets are pricing in a high chance of a rate reduction at the Fed's next meeting, on Dec. 11, investors were on edge until the closing bell, and the major indicators changed direction several times while analysts sorted through the Fed's statements.
Government bonds rose on the Fed's prediction of a slowing economy in 2008. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.05 percent.
Commerce Department data gave investors a fuzzy picture of the housing market. October housing starts rose, and building permits fell.
Meanwhile, Freddie Mac posted a $2 billion quarterly loss Tuesday, escalating fears about the government-sponsored mortgage lender and its counterpart, Fannie Mae. Also, an analyst downgraded Countrywide Financial, pointing to continuing credit problems that had investors uneasy even before the Fed released its minutes.
Countrywide's downgrade spurred speculation that it might file for bankruptcy protection, which the company denied. After plunging by more than 20 percent, Countrywide shares ended down 29 cents, or 2.7 percent, at $10.28.
Movers
Hewlett-Packard rose 12 cents, to $49.56, after its fourth-quarter profit beat estimates.
Target fell $2.21, to $51.69, as third-quarter profit slipped 4 percent.
