Fed Juggles; Stocks Run in Place

The shrinking trade deficit could boost fourth-quarter GDP estimates by at least 0.5%, says John Lonski, chief economist at Moody's Investors Service. The deficit narrowed to $58.9 billion in October, down from $64.3 billion in September, and it was below expectations for a $63 billion reading. The trade deficit has shrunk 14% from its record $68.5 billion in August this year. The news prompted Lonski to raise his estimate for fourth-quarter GDP to 1.5% from 1%.

Also threatening a bond market rally Tuesday was more evidence of excess liquidity in the system. How can the Treasury market really let loose on a day when Ford (F Quote) financing arm Ford Motor Credit doubled the size of its high-yield bond offering to $3 billion from $1.5 billion?

Combining Tuesday's bond offering with the upsized $5 billion convertible bond offering by Ford Motor Co. last week, the junk-rated, struggling automaker seems positively awash with funding opportunities. Reflecting the huge demand for high-yielding assets, the company increased the total size of its announced fund-raising plan to $23 billion from $18 billion in a matter of weeks. Ford's shares fell 2% on the day.

"When you see something like that, you wonder just how badly the U.S. economy needs a rate cut," says Lonski.

The stock market fluctuated throughout the day Tuesday. Stocks were weaker ahead of the FOMC statement, then rebounded, fell again, and rebounded into the closing bell.