Stocks Slammed As Bernanke Signals Rate Cut

Stocks markets and carry trades were hammered Wednesday after September's retail sales report showed spending contracted by the most in three years. Also hurting sentiment was a speech given by Federal Reserve Chairman Ben Bernanke, who said "credit markets will take some time to unfreeze," and that "even if they stabilize...broader economic recovery will not happen right away." It was the biggest decline since the 1987 stock market crash as markets erased nearly 90% of Monday's rally. The DOW lost 350 points in the last hour of trading.

Mr. Bernanke tried to reassure investors when he promised that officials "will not stand down until we have achieved our goals of repairing and reforming our financial system and restoring prosperity."

Speaking before the 100 year old Economic Club of New York, Mr. Bernanke stressed that policymakers now have the tools they need to address the credit crunch. And he expressed confidence that the U.S. "will emerge from this period with renewed vigor."

"Bernanke gave an honest assessment of the situation, which unfortunately scared investors silly," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "He broadly hinted that rates would be cut again by saying the Fed will use 'all the tools at our disposal,' but the problem appears to be that the need for rate cuts implies that not enough has been done and that the situation is likely to get worse before it gets better."

At the close of floor trading on the NYSE, the DOW was on 8572.81 after losing 738.18 points (-7.93%). The S&P barely managed to stay above 900, closing on 907.59 after a loss of 90.42 points (-9.06%) while the NASDAQ finished the day's trading on 1628.33 with a loss of 150.68 points (-8.47%). Treasuries were bought as traders once again sought the safety of government debt. The 2-year note's yield fell 23.6 basis points to 1.584% while yield on the 10 year note fell 9.3 basis points to 3.982%. Currency markets were in full risk-aversion mode, with the dollar gaining 0.92% on the euro and 0.66% against the pound while it fell 2.04% on the yen. The Australian dollar fell a massive 5.33%. The VIX closed on 68.60.

Crude oil for November delivery was recently trading down $3.84 (-4.93%) to $73.87 per barrel as traders speculated that slower growth would crimp demand.

Gold for December delivery recently traded down $10.90 (-1.27%) to $844.50 per ounce.

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