Wednesday Wrap: Markets Jittery After Fed Action

 |  Includes: DIA, IEF, QQQ, SPY, USO
by: Roy Mehta

The major indices finished with gains Wednesday after an important move was announced by the Fed. The Dow Jones Industrial Average rose 41.3 points (+0.31%), Standard & Poor's 500 index increased 8.9 points (+0.61%), and the Nasdaq finished up 18.8 points (+0.71%). Volume was solid on the NYSE at 1.73 billion shares, and advancers beat decliners by a ratio of about 6:5.

Before the open, the Fed announced it would work in coordination with the Bank of Canada, Bank of England, European Central Bank, and Swiss National bank to increase liquidity through auctioning term loans and establishing foreign exchange swap lines (full story). The Fed will now be able to inject funds into an otherwise frosty credit market through a broader range of financial activities, and by doing so, hopefully spur economic growth. The U.S. 10-year Treasury note fell 31/32 in price, now yielding 4.09%.

The financial sector (+0.1%) had only a small gain despite the Fed announcement because of bad news from Bank of America (BAC, -2.7%), which fell after it said writedowns will be greater than previously expected in the fourth quarter (full story) and earnings will be "quite disappointing." And Wachovia (WB, -3.4%) said its loan-loss provision will be about $1 billion, double what was originally expected. SLM Corp (SLM, -10.6%) lowered its 2008 guidance and said negotiations with J.C. Flowers to buyout the lender have ended (full story).

All sectors finished with gains except transportation (-0.28%), which was under pressure because crude jumped $4.37 to $94.39/barrel. The increase was a result of the Fed's announcement, and because Goldman Sachs increased its average price forecast for crude in 2008 to $95 from $85 (full story).

The PPI (8:30 AM), Retail Sales (8:30 AM), Jobless Claims (8:30 AM), and Business Inventories (10:00 AM) will all be released Thursday.

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