Wall Street barreled higher this week, giving the Dow Jones industrial average its biggest two-day point gain in five years, after a Federal Reserve official hinted that the central bank may lower interest rates again says BetOnMarkets.com’s Michael Wright.
Investors’ renewed hopes for a rate cut added to their relief that companies that made losing bets on sub-prime mortgages, such as Citigroup Inc. and Freddie Mac, are coming up with ways to raise cash. The market was clearly
optimistic that at least some of the damage from the credit crisis was finally being mitigated.
However, Wall Street has been fickle in recent months, with the Dow often rising and falling by triple digits, and no one is betting that the mortgage crisis that tripped up the nation’s financial industry this year, is over, or that the market’s huge gains so far this week will stick. Despite its spectacular advance, the Dow remains more than 6 percent below its Oct. 9
record, close to over 14,000, having plunged due to worries that the housing market’s slump will lead to further losses for banks, and that the Fed can’t keep slashing rates
The possibility for lower rates seemed more compelling to investors than persistent concerns about a slowdown in economic growth. The Fed has already reduced rates at its last two meetings, and continues to inject billions of dollars into the financial system through repurchase agreements, to help calm the shaky markets. The central bank will hold its final rate-setting meeting of the year on December 11th.
Plunging oil and gold prices also lifted investors’ hopes for a rate cut, if inflation is in control policy makers have less reason to keep rates high. The Fed’s Beige Book of economic activity around the country, said with the economy expanding at a reduced pace, most core prices are stable or down slightly.
The news of the last few days points to the possibility that the volatility with which the market has been plagued during the last few weeks, is here to stay at least for the rest of the year.
The average trader is able to take advantage of this increase in volatility in the equities market, by buying an ‘up or down’ option from BetOnMarkets.com
This option compensates the trader if the index touches either the higher or lower trigger, within the predetermined time frame. Buying a 20 day term ‘up or down’ option on the S&P500, with 60 points on each side, returns a possible 7% ROI.
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