Apple Gains 10% As Fed Lowers Interest Rates

The big news today is from the Federal Reserve (the Fed) which lowered interest rates a full half point in the middle of the day. Employment figures that the Fed received today apparently sparked the surprise move. The upshot for Apple is that the stock closed up more than 10 points, a significant gain, that mirrored the gains felt in the rest of the technology sector.

The Federal Reserve controls interest rates in the form of the Federal Funds rate and the Discount rate, or those rates which the Fed charges commercial banks for short term loans. Those rates are then reflected by commercial banks which charge a higher rate to their own customers. The Federal Funds rate was cut by a half point to 6% while the new discount rate 5.75%, lower by a quarter point.

Fed Chairman Alan Greenspan has been in charge of the Federal Reserve for most of this decade, and is largely responsible for much of the economic growth during that time (slight bumps notwithstanding). Mr. Greenspan and the rest of the Federal Reserve Board is known for moving very slowly and deliberately in small increments. A half point move in any direction is considered extreme, but even more so when it comes between regularly scheduled Fed meetings.

According to C-Net:

In its statement Wednesday, the Fed said the rate cuts were made "in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets and high energy prices sapping household and business purchasing power."

Other economic indicators released in recent weeks have reflected the ailing economy. Consumer confidence, which remained at record levels most of last year, recently dropped to its lowest point in two years. Gross domestic product, which rose at a 5.6 percent annual rate in the second quarter, grew at a 2.2 percent pace in the third quarter, its slowest pace in four years.

Perversely, the mere fact that the Fed has cut rates unexpectedly could turn the rally around if the markets interpret the move as sign that the economy is slowing much more quickly than originally thought. Another mitigating factor that could harm the market rally is an after market earnings warning from Inktomi. Such earnings warnings coming from tech giants like Dell, Gateway, Apple, and many others, are what sparked the market downturn that may have finally bottomed out with todayis rally. All of the stocks we regularly track in the Stock Watch are in the "Up" column today, though several started off the day at or near 12 month lows.

Appleis stock shot up more than 10% today. The stock closed at 16 3/8, a gain of 1 1/2, or 10.08%, on heavy volume of 14,482,200 shares trading hands. The stock traded as high as 16 11/16 in later afternoon trading before some profit taking reclaimed some of those gains just before market close. Mainstream reaction to Appleis price cuts have been mixed with some people heralding the move as much needed and others saying that it is an indication that Apple is seriously ailing. MacWeek is reporting that Appleis inventory on hand has decreased from 11 weeks to somewhere between 6-7 weeks on hand. Thatis good news for Apple.

The Nasdaq also rallied to one if its biggest one-day percentage gains ever, closing at 2616.69, a rocket ride of 324.83, or 14.17%. As Adam Sandler might say "Not too shabby."

The Dow rose a more conservative 2.81%, closing at 10945.75, or 299.60. As money poured back into technology, some of the "safer" sectors such as tobacco and utility stocks paid the price.

The S&P 500 closed at 1347.56, a gain of 64.29 (+5.01%).

Akamai closed at 24 1/4, a stellar gain of 4 1/2, or 22.78% on high volume of 4,677,800 shares trading hands.

Adobe regained almost, but not quite all of yesterdayis losses to close at 57 15/16, a gain of 11 13/64 (+23.97%) with 7,574,200 shares trading hands. Thatis more than twice the normal volume.

IBM climbed to 94 5/8, higher by 9 13/16 (+11.57%) on volume of 12,746,800 shares trading hands. This comes despite continued reports of slowing corporate expenditures.

Motorola closed at 24 1/8, an increase of 3 7/8 (+19.14%) in heavy volume of 25,675,700 shares trading hands. Motorola announced new home networking products, and deals with several other companies in the consumer electronic appliance market.

Earthlink closed at 6 7/16, another very large gain of 1 1/8 or 21.18%.

Gateway traded higher to close at 18.90, a gain of 1.65 or 9.57%. Gateway also saw higher than normal volume of 6,116,800 shares trading hands.

Dellis closed at 20, a gain of 2 1/2 (+14.29%) on heavy volume of 51,021,300 shares trading hands.

Hewlett Packard tacked on more than 12% to close at 34 1/16, a gain of 3 13/16 (+12.60%) on volume almost twice the average with 14,255,900 shares trading hands.

Intel saw their market cap rise to US$230 billion as it traded higher by some 10%. The stock closed at 34 15/64, a gain of 3 11/64 (+10.21%) on heavy volume of 77,543,000 shares trading hands.

Microsoft also joined in todayis gains closing at 47 15/16, a gain of 4 9/16 (+10.52%) on heavy volume of 67,557,400 shares trading hands. According to CNBC, Steve Balmeris net worth increased by several billion dollars today. Oracleis CEO, Larry Ellison, saw his net worth increase by some US$7.5 billion.

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our updated Apple Stock Watch Special Report.