[Updated at 2:44 p.m.] It's unfortunate how it now counts as good news whenever the markets aren't nosediving for any significant period of time. But that's what it's come to, so ... hooray! The Dow spent most of Tuesday in positive territory, a vast improvement over yesterday, when it was down one million points, give or take. Investors were hoping that the worst was over and were optimistic about a meeting of the Federal Reserve's policy board. But then the Fed made no promises to use newly created money to buy bonds on the open market, and the markets reacted badly.
The Fed did promise to keep its benchmark interest rate near zero for another two years, but that's been the case ever since the dark days of 2008, so it's unclear what effect the new announcement will have. Many investors had been hoping for another round of quantitative easing, which essentially means creating money out of thin air and using it to buy assets from banks and other investors. QE2, as the second round of quantitative easing was known, resulted in the purchase of $600 billion in asset purchases and is credited by many with causing a sharp rise in stock prices in the first half of this year — of course, that's now been erased by the last week's plunge.
The market's reaction to the Fed announcement was — surprise, surprise — all over the place and crazy volatile. After gains of more than one percent ahead of the news, the Dow Jones was down 1.62 percent as of 2:44 p.m., the S&P 500 was actually up 0.67 percent, and the Nasdaq was down 0.74 percent.
Those beautiful green arrows were nice while they lasted.
Fed promises to keep rates low for at least 2 years [Reuters]
Big Sell-Off Eases as Stocks Open Higher on Wall Street [NYT]
Fed May Boost Stimulus Pledge [Bloomberg]
Q+A: What is Fed weighing as it mulls more easing? [Reuters]