Closing Bell: 08.07.07

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Despite the thoroughly anticlimactic announcement that the Federal Reserve was leaving rates unchanged, today’s indexes went on a roller coaster ride. The Dow, NASDAQ and S&P all began the day down, then rose through the morning leading up to the Fed announcement. As the Fed announcement came out, the major indexes all plummeted before recovering. And then sinking again.
The text of the announcement and news of increasing labor costs dashed the hopes of most of those who thought the Fed might be readying for a rate cut later this year. Despite lower price inflation in recent months, the Fed noted that it was not convinced the danger of higher prices was in the past. Those worried about the credit markets got at least a pat on the top of the head from the Fed, which acknowledged the turmoil but said that global economic strength outweighed any dangers from the credit markets.
The financial stocks, which have been battered in recent weeks, saw modest gains. But perhaps more importantly, Bear Stearns reportedly managed to sell $2.25 billion worth of five year bonds despite widespread fears about the bank’s financial health and a freeze up in the broader corporate credit markets. The bonds are pricey, yielding 2.45 percentage points over U.S. Treasuries. But the ability of Bear to place the bonds may help bolster confidence in the bank. And the appetite for the debt may allay fears about the much discussed credit market freeze.
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