Nearly every corner of Wall Street benefited from the Federal Reserve's surprising half-point cut, just not by the same amount.
All 10 of the market's sectors and all but one of its industries — gas utilities — gained. But financials and home builders, two of the areas brutally punished during the stock market's recent turmoil, enjoyed more than their fair share of the sudden optimism.
Traders didn't waste any time reading into the Fed's move, taking it as a signal it's safe to be aggressive again and buy up sectors and industries deemed too risky just a few weeks ago, says John Schloegel, portfolio manager at Capital Cities Asset Management. Particular industries and sectors that benefited most:
•Financials. The group, battered by fears about troubled subprime mortgages, rose 4.5%, making it the best performer of 10 Standard & Poor's mhp sectors.
Good news came in two waves. Lehman Bros. leh cooled mortgage and credit crunch worries by posting quarterly earnings of $887 million, or $1.54 a share, which beat lowered earnings estimates by nearly 5%. Then the Fed's news came and investors didn't look back. Lehman rocketed $5.87, or 10%, to $64.49.
"Lehman gave financials a kick-start in the morning, and then the Fed gave them a turbo-boost in the afternoon," says Charles Crane of Scotsman Capital. Even after the day's gains, though, the sector remains down 5.3% this year, making it the worst sector tracked by S&P.
•Home builders. The nation's home builders shook off their role as the market's punching bags. The SPDR Home builders exchange traded fund, which tracks the industry, gained $1.22, or 5.2%, to $24.85. The Fed's rate cut was enough to overpower comments from Toll Bros. tol CEO Robert Toll, who said at the Credit Suisse Home cs builder Conference that the current housing downturn is worse than past ones in the 1980s, Reuters rtrsy reported. "These stocks were so beaten down, it was time for positive news," says Mike Tarsala, managing analyst at Thomson Squawk Box. toc
•Retail. Stronger housing means a more confident consumer, explaining a rise in retail stocks, Tarsala says. The SPDR S&P Retail ETF gained 5%.
•Materials and energy. Figuring the rate cut could keep the economy, and industrial output, humming, investors jumped back into materials and energy stocks, Schloegel says. Tires and rubber, steel, and metals and mining were among the day's top five industries, Bridge Information says. Metals and mining also got a lift from a gold-price jump fanned by the idea that lower rates could weaken the dollar, Schloegel says. Gold hit a 27-year high, Bloomberg News says.
There's plenty of skepticism, though, over whether the troubles facing sectors and industries like financials and home builders will vanish overnight thanks to a rate cut. "It's never that easy," Schloegel says.