Stocks Retreat After Rally

A day after the stock market’s surge, investors pulled back a bit today, even with better than expected quarterly results from Morgan Stanley. As of early this afternoon, the Dow Jones industrial index fell approximately 60 points after yesterday’s 420 point surge, which came on the heels of the Federal Reserve’s announcement that it would slash the federal funds rate 75 basis points, to 2.25 percent. Though many observers had expected a 100 basis point cut, the Fed’s move was nonetheless greeted with optimism by the market. Also driving yesterday’s gains—the Dow saw its biggest jump in more than five years—were stronger than expected earnings reports from Lehman Bros. and Goldman Sachs. The gains were a welcome sign to investors after the troubled Bear Stearns was saved from creditors by a bargain basement buyout from JP Morgan Chase & Co. Today Morgan Stanley joined Lehman and Goldman Sachs in reporting gains which outpaced expectations. And with Visa Inc.’s record-setting $17.9 billion IPO yesterday, as well as news that the government would infuse up to $200 billion into the mortgage-backed securities market via Fannie Mae and Freddie Mac, positive economic signs have not been hard to find in the past two days. Still, many investors are remaining on the sidelines until the results of the government’s recent stimulus efforts become clearer.