WASHINGTON All but a dozen restaurant stocks rose Tuesday on news that the Federal Reserve had lowered its benchmark interest rate by half a point to stunt the recent damage to the financial markets from housing and credit woes. The move also is expected to boost consumer discretionary spending, which typically is a boon for the restaurant sector.
The Dow Jones jumped more than 300 points Tuesday and the Nasdaq rose 70 points.
The Fed cut reduced the federal funds rate — or the rate that banks charge each other on overnight loans — to 4.75 percent. It was the first reduction since 2003. While the move was expected, there were questions about whether the Fed would reduce interest rates by just a quarter point and whether any reduction would be enough to stem a recession, which pundits have increasingly started to predict could occur if jobs, spending and housing data continue to weaken.
In a statement, the Fed said it would “continue to assess” the economic outlook and “act as needed to foster price stability and sustainable economic growth.”
John S. Glass, a restaurant securities analyst at CIBC World Markets in Boston, said in a report that “rate cuts benefit restaurant stocks, especially small-cap names É [but] coupled with a recession, the impact of a rate cut is significantly blunted.”
During the last period of significant rate cuts, in 2001 through 2003, restaurant stocks outperformed the overall market by 33 percent, Glass said, and small-cap restaurant stocks outperformed the market by 110 percent.