The dollar tanked against everything as stocks surged after the FOMC announcement today, after officials said they will purchase up to $300 billion of longer-term U.S. debt over the next six months. Bond prices rose sharply on the anticipated increase in demand.
Stocks rose in the 60 minutes following the Fed's statement, but retreated in the next half hour as traders took profits. The 30 minute period surrounding the Fed had the strongest volume of the day. During the last 30 minute period the S&P tested the support established during the decline, and finished with a gain although it was below the high of the session. The last 30 minute time frame had the lowest volume of four periods following the Fed's statement.
Traders should take note of the following. Since the Fed began to lower borrowing costs in September 2007, the stock market has performed extremely poorly. The reason is obvious; the Fed only takes such actions when it sees problems in the economy, and the actions to lower rates were obviously well justified.
Stocks began their sustained rally in the first quarter of 2003 after the Fed began making noises about increasing borrowing costs, and the rally was sustained throughout the entire time the Fed took rates to 5.25%. The reason is because the Fed only raises interest rates when it sees inflation and the economy expanding faster than it would like. That's the time that stocks do well.
So the best sign that things are improving will likely be given when the Fed starts to indicate it will begin to wind down its various facilities, not expand them. Today's movement would seem to bear this out because while stocks finished with a gain they hardly advanced strongly, and they did finish below session lows.
At Wednesday’s close of floor trading on the NYSE, the DOW was on 7486.58 with a gain of 90.88 points (1.23%) while the S&P finished on 794.35, up 29.11 points (2.09%). The technology-heavy NASDAQ closed on 1491.22 after rising 29.11 points (1.99%).
The dollar, as mentioned, plunged against nearly all major currencies after the announcement. On the day, the greenback ended up with a loss of 3.68% to the euro, 2.46% on Australia's currency, 1.66% on sterling and 2.47% against the yen.
Treasuries were bought after the Fed's announcement, and we're not kidding about this. Yield on the 2-year note fell 23.9 basis points to 0.793% while yield on the 10-year note declined by 50.7 basis points to 2.502%.
Crude for March delivery was recently trading up just 18 cents (0.39%) to $49.35 per barrel.
Gold for April delivery was recently trading up $23.00 (2.51%) to $934.40 per ounce, as traders became convinced the Fed might be successful in its plan to debase the currency and inflate its way out of the liquidity trap.