U.S. stocks higher in volatile trading
NEW YORK -- The global sell-off in stocks raged on Wednesday and Wall Street stocks were choppy despite a coordinated interest rate cut by central banks around the world designed to boost credit markets and investor confidence.
The Dow Jones industrial average opened lower, rose by more than 100 points by 10 a.m. ET, but was negative again within half an hour. By noon ET, stocks had lost more than 200 points, but by 2 p.m. ET, the index was up more than 125.
The volatility came despite a coordinated interest rate cut involving the Federal Reserve and several major European central banks. It also comes one day after the blue-chip index fell more than 500 points to five-year lows. U.S. stocks followed sell-offs in Asia and Europe.
Stocks in Japan plunged 9.4%, its biggest drop in more than two decades, pushing the Nikkei 225 index to a five-year low. Shares in England, Germany and France lost 6.5%, 5.9% and 6.3% respectively.
Increasingly, investors on Wall Street and around the world are concerned that all the steps taken by governments and central banks around the world won't be enough to quickly stem the mushrooming credit crisis, which started in the U.S. mortgage market and spread around the world.
In a knee-jerk reaction, "The coordinated easing could be perceived as a sign of just how bad things are," says Kevin Lane, chief market strategist at Fusion Analytics Research Partners.
Lane says fear is on the rise but that investors should "not be in a rush to find the bottom," Lane says. But he adds that spike in panic and pessimism shows "we are getting very close to a buy."
Earlier Wednesday, the Federal Reserve, in concert with the European Central Bank, Bank of England, The Bank of Canada, the Swedish Riksbank and the Swiss National Bank, slashed short-term interest rates. The Fed cut its overnight bank-to-bank lending rate by half of a percentage point, lowering the so-called Fed funds rate to 1.5%. It was the first time banks joined forces to cut rates at the same time in an effort to resuscitate ailing financial markets.
In a statement, the Fed said the credit crunch posed a further threat to the economy, reiterating what chairman Ben Bernanke said Tuesday.
In a research report, Rich Bernstein, chief investment strategist at Merrill Lynch, says investors should watch jobless claims to get a gauge of where stocks are headed in the weeks and months ahead.
"The government can come up with any number of refinancing and liquidity plans, but households are likely to increasingly default on mortgages and other debts if cash flow is not stabilized via employment," Bernstein said.
He says investors should stay defensive and put their money in consumer staples and healthcare stocks. He also recommends dividend-paying stocks, companies in developed markets, as well as high-quality bonds and Treasuries.
