Stocks on Wednesday can't help but feel some of the spillover of Tuesday's euphoric upswing, as the Fed winds down its two-day meeting with an anticipated rate cut.
Traders expect the Fed to trim the Fed funds target rate by as much as a half point, taking it to 1 percent when it makes its announcement at 2:15 p.m. But it really is the calming of global equities and credit markets that could have more immediate impact on trading than the Fed.
Stocks bounded higher, by a stunning 10 percent plus Tuesday, driven in part by the idea that credit is moving more freely. A report that the Bank of Japan was considering a rate cutpushed the yen lower , in its biggest one-day decline against the dollar in three decades. The Dow rose 889 or 10.9 percent to 9065.12, its second biggest point gain in history. The S&P 500 rose 92 to 940, an increase of 10.8 percent.
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Brown Brothers Harriman currency strategists warn that the yen's decline does not mean that deleveraging is over or "that risk appetite has returned unbridled." They expect trading conditions to remain choppy, and investors will focus on how well Asian equities markets hold up overnight.
Miller Tabak's Tony Crescenzi, in a note, said he sees signs the Fed's commercial paper program starting to work, and he expects the trend of falling Libor to continue. Libor is the bank to bank lending rate. "Libor is being pressured lower by the launch of the Federal Reserve's Commercial Paper Funding Facility," he wrote.
Crescenzi also said the Fed's facility is helping free up money for the inter-bank market by reducing corporation's dependence on bank credit.
Tuesday's trading saw strong buying on decent volume in some downtrodden names, including the financial stocks.
Some big earnings are out Tuesday including Procter and Gamble, Kraft, Comcast and Aetna, as well as Hess, Tesoro and Murphy Oil.