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Fed rate cuts help local stocks
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Many central Ohio stocks dropped at Tuesday’s opening. National City stocks opened down twelve percent. Huntington Bancshares, American Electric Power, Honda, Wendy’s and Worthington Industries all began the day at least four percent below last week’s closing. But by midday most had stabilized and were close to, if not above, previous closing prices. That may be due to the Federal Reserve, which early in the day called an emergency meeting to cut two key interest rates by three-quarters of a percent. Those are the largest single-day cuts in 26 years.
Will it help to support growth? Yes, I think it will.
Thomas Berner is an economist with UBS Wealth Management.
The sectors that will benefit most in this environment are defensive sectors, consumer staples like health care, Berner says. That’s versus more cyclical sectors like consumer cyclicals, energy cyclicals and industrials.
Insiders are also hoping it helps the down-trodden mortgage sector. The fed lowered its discount rate, which is what it charges banks for direct loans. It also slashed the federal funds rate, which impacts how much consumers pay on credit card debt, auto loans and home equity loans.
Lenny Zangardi is president of Columbus-based Strategic Mortgages. He predicts the rate cuts will spur many homeowners into refinancing, particularly those in the sub-prime market.
It could be an opportunity for millions of people in America to finally lower their house payment on a fixed rate and finally afford the home they live in, Zangardi says.
Zangardi says he also expects an increase in first-time home buyers. He says that number could be pushed up further if President Bush’s recently-proposed tax rebates are approved.