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Wall Street Whiplash: Markets Rebound as Investors Push Aside Fears, for Now

August 9, 2011 at 12:00 AM EDT
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JUDY WOODRUFF: Wall Street rallied sharply late today, with the Dow Jones industrials gaining well over 400 points. Stocks roared back after the Federal Reserve’s new pronouncement on the economy, but only after a long day of gyrations.

The morning started with U.S. stocks rising strongly, after the routs of recent days, including Monday’s huge losses.

JASON WEISBERG, Seaport Securities Corporation: It’s all momentum, guys. I think some of the people that were a little panicked about their stocks saw the bounce this morning as an opportunity to maybe unload some of their positions or at least lighten them up. But, quite frankly, this is really a momentum-driven market.

JUDY WOODRUFF: And the momentum quickly turned negative again after a warning this afternoon from the Federal Reserve.

In a statement, the Central Bank’s policy-making panel said — quote — “Economic growth so far this year has been considerably slower than expected. The committee now expects a somewhat slower pace of recovery.”

Being more specific than usual, the Fed said it expects to keep its key interest rates near zero for the next two years, where it’s been since December of 2008. The Fed’s words triggered selling at first. Within minutes, the Dow Jones industrial average was down more than 180 points for the day. Then, just as suddenly, the market shot back up, as investors pushed aside their fears for now.

By the close, the Dow Jones industrial average had rocketed to a gain of nearly 430 points to close near 11,240. The Nasdaq added almost 125 points to wind up at 2,482.

In Europe, markets rebounded from Monday’s big losses. Still, the watchword was caution.

BENOIT DE BROISSIA, KBL Richelieu (through translator): We must say that the markets are still very volatile, very pushed around, with nervous interventions on the markets. But you must not put your trust in a specific timing. We must stay very careful about the evolution of the markets.

JUDY WOODRUFF: Officials on the continent remain worried about the solvency of Italy and Spain, even after the European Central Bank tried to help by buying billions of dollars worth of their bonds.

Germany’s economic minister called for all of the 17 Eurozone nations to take action.

PHILIPP ROESLER, German economy minister (through translator): It is not sufficient to only set up bailout funds. Rather, we need a new stability pact for Europe.

JUDY WOODRUFF: In Asia, markets slid into bear territory, down 20 percent from their recent peaks. The selling followed worse-than-expected inflation data from China and worries about the U.S. credit rating downgrade. Still, there were no immediate signs that major creditors are looking to divest of the U.S. economy.

JAMES ROY, China Market Research: So while China may be looking for other places to — to put its — its reserves, I think the dollar will still be — I think U.S. Treasuries will still be a place where China will put its money.

JUDY WOODRUFF: And back on Wall Street, some analysts suggested that, downgrade or no downgrade, nervous investors should strongly consider U.S. government bonds.

JOE MAGYER, The Motley Fool: The safest place for your money right now is the most ironic place. And that’s in U.S. Treasuries.

JUDY WOODRUFF: For many, though, gold was still the haven of choice today. It set another record, rising to $1,740 an ounce.