Stocks Soar on Fed's 75-Point Rate Cut

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Goldman Sachs said its fiscal first-quarter net income dropped 53% on $2 billion in losses on residential mortgages, credit products and investments, interrupting 10 quarters in a row of higher year-over-year earnings. But results still topped the expectations of Wall Street analysts.

"Market conditions are clearly very difficult," said Goldman CEO Lloyd C. Blankfein. "But we saw strong customer activity across many of our franchise businesses in the first quarter. Although market conditions present many challenges at the moment, they also offer considerable opportunities." Goldman shares rose 24.6% to close at $175.59.

Meanwhile, Lehman Brothers reported a 57% drop in fiscal first-quarter net income amid weakness in its fixed-income business, but like Goldman its results also topped analysts' expectations. The firm has been the subject of much market speculation about its financial health in the wake of Bear’s collapse. Lehman CEO Richard S. Fuld Jr. said, "our results reflect the value of our continued commitment to building a diversified platform and our focus on managing risk and maintaining a strong capital and liquidity position." Lehman shares traded 46.4% higher at $46.49.

Treasury Secretary Henry Paulson said the U.S. economy had turned down sharply but declined to label the situation a recession. "We know we're in a sharp downclimb and there's no doubt that the American people know that the economy has turned down sharply. So to me, much less important is the label that's placed on it today. Much more important is what we do about it," he told NBC's Today Show.

In a separate interview on ABC's Good Morning America, he described the economy as being in a "sharp decline."

The U.S. producer price index rose 0.3% in February, lower than the 0.4% that markets had expected. However, the core rate, excluding food and fuel, was up 0.5%, much hotter than the 0.2% expected. The numbers follow January's 1.0% gain on the headline, and 0.4% on the core. The headline pace is now running at 6.4% year-over-year, vs. 7.4% in January. The core rate is up 2.4% from a year earlier, vs. 2.3% the month before.

U.S. housing starts slipped 0.6% to a 1.065 million unit annual pace in February, but bigger than the 0.990 rate that markets had expected. Moreover, it follows a large upward revision in January to a 1.071 million rate (1.012 million before). However, starts are still down 28.4% over last year (from -27.9% previously).

April NYMEX crude futures settled $3.74 higher at $109.42 per barrel on Tuesday.

Gold prices gave back earlier gains and reversed lower as the dollar index climbed after the Fed announcement. April gold futures fell $24.10 to $978.50 per ounce. The support above $1,000 earlier in the session had been bolstered by reports that South African electric utility Eskom said power may have to be cut to the gold and platinum mines if more generators fail because of bad weather.

Among Tuesday’s stocks in the news, Yahoo! (YHOO) filed an investor presentation that details its three-year financial plan and strategic initiatives which are expected to roughly double operating cash flow over the next three years from $1.9 billion to $3.7 billion and generate $8.8 billion in revenue excluding traffic acquisition costs in 2010. The presentation supports a unanimous determination by Yahoo's board of directors that Microsoft’s (MSFT) Jan. 31 unsolicited acquisition proposal "substantially undervalues Yahoo!." Yahoo shares rose 7.0% to $27.66.

Pilots at Delta Air Lines (DAL) notified company officials they remain unable to reach agreement with their counterparts at Northwest Airlines (NWA) on how to integrate pilot ranks if the two airlines combined -- a deadlock that could scuttle the merger sought by the two carriers, according to a Wall Street Journal report. Delta shares were up 9.3% at $10.09.

NYSE Euronext (NYX) set a $1 billion share buyback and raised its annual dividend 20%, to $1.20.

European stock markets recovered some of Monday’s big losses. In London, the FTSE 100 index gained 3.54% to trade at 5,605.80. In Paris, the CAC 40 index rose 3.42% to 4,582.59. Germany’s DAX index advanced 3.41% to 6,393.39.

Asian markets posted gains overnight. Japan’s Nikkei 225 index rose 1.5% to 11,964.16. The Hang Seng index in Hong Kong climbed 1.42% to 21,384.61.

Treasury market

Treasury yields rose, and prices fell, as traders digested the Fed's rate cut decision, which will put more pressure on bonds. The 10-year note was 1-04/32 lower at 100-15/32 for a yield of 3.44%, while the 30-year bond fell 29/32 to 100-24/32 for a yield of 4.33%.