Stocks surge after Fed rate cut by 0.5%

Stocks surged this afternoon after the Federal Reserve’s half-point interest rate cut.

The Dow Jones industrial average gained 335.97 points, or 2.5%, to close at 13,739.39. The Standard and Poor’s 500 stock index rose 43.13 points, or 2.9%, to 1,519.78. The Nasdaq composite index gained 70.00 points, or 2.7%, to 2,651.66.

Stocks had risen in the morning on widespread expectations that the Fed would cut rates. There had been some worry, however, that a quarter-point rate cut would disappoint investors and spark a sell-off.

Those fears were alleviated by the Fed announcement, and stocks bounded upward immediately. Bank and brokerage stocks, which are especially sensitive to rate fluctuations, led the advance.

Investors are betting that lower interest rates will ease the recent credit crunch tied to problems with sub-prime mortgage defaults, as well as stimulate the beleaguered housing market.

In a potential economic warning sign, however, bond yields climbed after the Fed action. That’s a signal that fixed-income buyers worry that a strengthening economy could trigger inflation. The yield on the two-year Treasury bond rose to 4.49% from 4.47% on Monday.

Hopefully this Fed rate cut will lead to better Real Estate Market through Next Year.