Stocks Rebound on Rate Cut; Dow Down Only 128 Points

The Dow was down more than 460 points earlier, but recouped most of its losses.

ByABC News
January 22, 2008, 7:41 AM

Jan. 22, 2008 — -- Stocks got off to a dismal start today but rebounded shortly as investors let a dramatic move by the Federal Reserve settle in.

The Dow Jones industrial average was down more than 460 points at one point in the day and as little as 22 points at another. But in the end -- after an extremely volatile day of trading -- the Dow closed at 128 points down. The losses were a lot less worse than most were expecting at the start of the morning.

The saving grace came with the Federal Reserve's dramatic action this morning, cutting interest rates .75 percentage points. The unplanned cut came after two days of massive losses in stock markets around the world but was not enough to prevent Wall Street from opening today to a dismal start.

The move was enough to save the day on Wall Street and actually led to European ending the day up instead of down.

This morning's emergency action by the Fed was the biggest single downward move in the key Fed funds interest rate -- what banks pay for overnight loans -- since a 1 percentage point cut Aug. 16, 1982.

The key Fed funds interest rate now stands at 3.5 percent.

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The move came after stock markets from Japan and China to Germany and England saw some of the steepest one-day slides in decades upon fears that the U.S. economy is heading downward.

Investors around the world signaled a lack in confidence in President Bush's ability to pull the American economy away from recession. The expectation is if the U.S. economy falters, the effects will be felt around the globe.

"If the U.S. market slows down or goes into a recession, the rest of the world is going to feel the pinch, too," said Mellody Hobson, president of Ariel Capital Management and a "Good Morning America" financial contributor. "A sneeze in the United States can cause a flu around the rest of the globe."

U.S. stock markets were closed yesterday in observance of Martin Luther King Jr. Day.

The Dow Jones Industrial Average opened down more than 440 points, more than 3.5 percent lower than Friday's close. The NASDAQ opened down 110 points, or 4.6 percent.

But as the trading day continued, the market started to look a bit better. Just one hour after the open, the market rebounded significantly with the Dow down only 185 points. Late in the day, the Dow looked like it might even move into positive territory but in the end closed down 128 points.

The Federal Reserve has long been scheduled to meet Tuesday and Wednesday of next week to vote on whether to cut rates.

All eyes on Wall Street are now looking toward that meeting to see whether the central bank, under the leadership of Ben Bernanke, will cut rates yet again.

Friday, Bush called for a $140 billion economic stimulus package to help give the sagging U.S. economy a "shot in the arm." The White House is urging congressional Democrats and Republicans to issue tax rebates of up to $800 for individuals and $1,600 for married couples as well as tax breaks for businesses.

When stock markets opened in Asia Monday, it became clear quickly that investors there were not satisfied that the president's plan would work. A few hours later, Europeans followed with their own dramatic drops.

U.S. Treasury Secretary Henry Paulson speaking this morning.

House Speaker Nancy Pelosi and leaders in both parties are meeting today with Bush at the White House to discuss a stimulus bill.

"I'm confident that we can get this done long before winter turns to spring," Paulson said of such a package.

"Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible," he added.

The last global recession was in 2001 the fallout from Sept. 11 and the dot-com bubble bursting.

So are we in a global recession now?

Hobson, for one, says no. "In a global recession, there's nowhere to hide, everyone suffers," she said. "Keep in mind, recession is a far cry from a depression."

The United States suffers a recession once every six years on average, and the 10 recessions since World War II have lasted no longer than 16 months, she said.

Hobson noted that today's economic troubles are being felt by people across all parts of the job market.

"This is a big departure from the past, when it was workers in manufacturing jobs or those with thin work histories that had to be most worried," Hobson said.

While the economy may get worse before it gets better, Hobson advises stockholders not to push the panic button.