The Fed cuts by a quarter percentage point and stocks rally.

10/31/2007 7:00 pm Central Time

By Dave Harris

A Halloween ghost loomed over Wall Street. It was a scary howl: "Boooooo! What's the Fed going to doooooooooo"? If they cut by too much, the economy would be perceived in worse shape than first thought. Some forecast a pause because oil has been so high and that raises inflationary pressures. But today the Federal Reserve pleased Wall Street by lowering a key interest rate by a quarter percentage point to 4.5 percent, and that was what most predicted. I believe the quarter point cut was just the right choice to help stabilize the housing and credit crisis. The accompanying statement from the central bank suggests the economy is in fine condition overall, and the financial markets are improving. The rate cut is good for stocks as it promotes economic growth and business/consumer spending.

The DOW rose 137.54 to 13930.01. The tech-heavy NASDAQ rose 42.41 at 2,859.12. The broader S&P added 18.36 to close at 1,549.38. Oil closed at $94.53 a barrel. These higher energy prices are shifting the central banks attention more towards inflationary concerns, in my view.

Google (GOOG) crossed the $700 a share mark today and is in a potential cell phone deal with Verizon (VZ) to use the internet search company's unique software. I think the stock is done going up for a while. So that’s a hold. Google (GOOG) closed up 12.23 to $707 per share Wednesday.

The recent pull-back on Procter &Gamble (PG) is a good buying opportunity. The diversified products company said the quarter grew 14 percent. But the company warned that higher costs would hurt the current quarter. This is a temporary setback. PG has a great laundry products business. I'm particularly impressed with the Home and Baby care segments, and the higher prices will improve profitability in the long term. The company also raised full year guidance. Buy the stock. You won't be disappointed. It's going to $80.

Although cereal maker Kellogg (K) raised full-year guidance, it disappointed. The stock has been trading lower since the earnings announcement on Monday. EPS was .76 versus .70 last year. Wheat prices are a concern here, but the company's cost-cutting and effective advertising will prevail, I believe. The stock closed up .82 cents at $52.79. It should be trading at $60.

Although it takes a back seat to the Fed announcement, third quarter economic growth came in better than expected at 3.9 percent. A big piece of data comes out Friday, when the all-important employment report for October will be released by the Labor Department.