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Last of Fed-driven 2010-11 NYSE stock rally is gone

October 3, 2011 |  8:27 pm

One of the Federal Reserve’s goals with its $600-billion Treasury-bond-buying program launched last November was to boost the stock market by getting more money into the financial system. And thereby, the Fed thought, it would boost the economy.

The central bank did indeed help stoke a rally in stocks a year ago: As Wall Street became convinced that the Fed would act, share prices began to surge in September 2010 after struggling through that summer.

Now, with the latest market slump, the last of those Fed-fueled gains have disappeared -- at least, based on the performance of the average New York Stock Exchange stock.

The NYSE composite index tumbled 3.2% on Monday to close at 6,574.29, taking it below the closing level of 6,704.15 on Aug. 31, 2010.

Nya The index (charted at left) had reached a 2011 high of 8,671.41 on April 29 of this year, a gain of 29% from the end of August. But stocks have fallen every month since April as the U.S. economy has weakened and as Europe’s government-debt crisis has deepened.

The NYSE composite now is down 24.2% from its April high. A drop of 20% or more generally is considered a new bear market.

Even if the Fed’s last economic-stimulus program (which wrapped up in June) didn’t stick, that isn’t keeping Chairman Ben S. Bernanke from trying again: The Fed on Monday launched its newest stimulus effort, whereby it will sell $400 billion of shorter-term Treasury securities and use the proceeds to buy longer-term Treasuries, trying to pull longer-term interest rates lower.

Unlike the last program, however, this one doesn’t involve printing new money. The Fed is merely shifting the makeup of its gigantic bond portfolio.

The stock market, it seems, would have preferred that the Fed rev up the printing press again: The NYSE index has fallen 8.9% since the Fed’s plan was announced on Sept. 21.


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Photo: Traders on the New York Stock Exchange floor on Monday. Credit: Seth Wenig / Associated Press