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Stocks Rally After Fed Decision to Pump $1.25 Trillion Into Economy

US Session Key Developments

  • Fed to Buy $1.25 Trillion of Treasuries and Mortgage Securities
  • IBM Seeks Sun Microsystems Takover
  • General Mills Earnings Disappointed

Stocks Rally After Fed Decision to Pump $1.25 Trillion Into Economy

Stocks snapped into positive territory within minutes of the Federal Reserve’s announcement that it would purchase $300 billion of longer-dated treasuries along with $750 billion in agency and mortgage-backed securities. Mortgage rates are closely linked to yields on 30-year U.S. government bonds and are hence expected to decline with the Fed’s new course of direction. “To provide greater support to mortgage lending and housing markets,” the Fed said. The news brought the S&P to close ahead for the sixth time out of the last seven trading sessions. Financials absolutely loved this news, surging 10.10% in the 500 stock index. Citigroup traded and finished above $3.0 for the first time in a month as central bank action alleviated doubts in the bank’s ability to continue having access to cash. Despite this spike in momentum, Citi may see a sell-off tomorrow as the once largest bank plans to see shareholder approval to issue 40 billion new shares. Bank of America also rallied 22.33% to finish at $7.67.

Dow 30              7486.58             +90.88                +1.23%
Dow stocks were primarily weighted to the upside despite two sectors, Consumer Staples and Information Technology, finishing the day down. The tech industry’s representation in the Dow took a hit after reports that IBM and Hewlett Packard, both blue-chip members, would be bidding on Sun Microsystems.

NASDAQ           1491.22               +29.11                  +1.99%
NASDAQ stocks performed the strong after the report of a takeover of Sun Microsystems sent the stock roaring by 78.87% to close the day at $8.89.

S&P 500            794.35                +16.23                 +2.09%
Consumer Staples was the sole sector to sell off today after General Mills, the second-largest U.S. cereal producer, reported that earnings fell to 79 cents per share despite analyst expectations of 89 cents per share. Traders saw this as a sign of industry health, leaving Kraft slipping 4.38%. The VIX volatility index was unable to finish the day below 40. Instead it dropped only 1.8% to 40.06.


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