The Dow Jones Industrial Average has started off as much as 464 points at the open but has been rebounding since. Even at the time that I've been writing this post, the Dow narrowed its decline from about 200 points to almost 100 points. When investors have been fearing since yesterday a 500 point free-fall, they collectively sigh at a 200 point drop.

Naturally, the Federal Reserve's rate cut of 75 basis points helped cushion the blow. Futures have indeed started rebounding immediately after the announcement. But what's interesting is the reaction this move caused. Financials, home builders and retailers are rebounding, with some financials and retailers being among today's best performers. Some financials like JPMorgan Chase (NYSE: JPM) and Merrill Lynch (NYSE: MER) are up over 3% and 3.6% respectively.

So you might say, financials I can understand. They've written down losses, their shares have declined markedly and with today's Fed cut, that could mean they've bottomed. But retailers? Hasn't everybody been talking about the consumers not having money and cutting spending? Especially come time of reset on their mortgages?

It is hard to believe that just two days ago we were sitting here wondering if Monday would be the day we saw $100 a barrel for oil. Prices have been falling all week, and are moving sharply lower today following a bearish inventory report from the US Department of Energy.

Today's report showed that last week oil inventories fell by 400,000 barrels. I have found two conflicting reports online where one showed analysts polled by Dow Jones were expecting to see a 500,000 barrel drop, and another article showed analysts expecting the 400,000 barrel decrease that we did see. Either way, the main point is that inventories did not drop more than expected, which is what is pushing prices lower.

Prices had already been showing signs of weakness earlier in the day on mixed messages from OPEC, and all week traders have been pushing prices lower on fears of an economic slowdown.

The Federal Open Market Committee (FOMC) decided to lower its Federal Funds Rate target by 25 basis points to 4 ½% and to lower the Discount Rate by 25 basis points to 5%. The decision to lower the Fed Funds Rate had one dissent, and the Discount Rate decision was unanimous.

The Fed left open the possibility of additional interest rate cuts but gave no indication of future action. It also mentioned the improvement in core inflation and the equal balance between upside risks to inflation versus the downside risks to growth.

The primary concern with current Fed actions is that Chairman Bernanke will get caught behind the curve since Fed actions can take several months to a year to take effect. The GDP report this morning indicated that the economy may be more resilient than many believe. Core inflation for the moment also appears to be less of a problem.

As expected the Federal Reserve announced a few minutes ago that it had indeed decided to cut rates by the expected 25 basis points.

In addition to the interest rate cut, the Fed also stated that inflation growth risks are roughly balanced. The interest rate cut was approved by a 9 to 1 vote.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

As you probably already know, the Fed surprised the market yesterday with a 50 basis point cut in short-term interest rates. Most investors had been expecting a 25 basis point cut, so yesterday's news sent the market soaring. Aside from rising stocks in the short run, what can we really expect to gain from yesterday's cut?

While many people are thinking that yesterday's cuts will help homeowners struggling to keep up with their mortgages, the sad fact is that this may not turn out to be the case. One of the more troubling trends that we have been seeing recently is the mass rise in foreclosures across the country. The majority of these foreclosures are happening to homeowners who bought their homes with adjustable interest rate loans. Sadly, these borrowers may see little relief from yesterday's Fed decision.

The reason why adjustable rate mortgage holders will not benefit from the cuts is that the majority of these loans are not tied to U.S. interest rates, but instead are tied to the London interbank offered rate, or Libor. And Libor is still sitting well above the Fed funds rates.

Okay, I admit it, I was a bear. It's not like I was the only bear in the market. There was no shortage of us. Any time you've read market commentary in the past couple of months, I'm sure you've come across analysts, economists, pundits who gave near doomsday scenario. I mean, can you spell Greenspan.

Guess what? The bears were right. There was cause to be concerned. There was cause to think the markets are headed down. There was cause to think all that because the signs to indicate so can be seen all over. Signs from the recession in the housing market, the credit crunch, to the recent employment report, the list only goes on. All of those indicate the U.S. economy may be in for rough times ahead. Today, the Federal Reserve proved the bears right with a half-point rate cut. It's not a small move and is indicative of the fact that the Fed has been seeing the same signs and acted preemptively. It is actually rather obvious from the policy statement: "Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."

The market rallied strongly on the Fed's announcement today and shot up about 2.5%. The Fed, chaired by Bernanke, cut rates by one half point surprising Wall Street which only expected a quarter point cut.

To excerpt the Feds announcement: "Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."

The NYSE had volume of 3.6 billion shares with 3,013 shares advancing while 345 declined for a gain of 301.28 points to close at 9,909.03. On the NASDAQ, 2.1 billion shares traded, 2,359 advanced and 657 declined for a gain of 70.00 to 2,651.66.

Stock futures started the day on a positive note, turning sharply higher in reaction to a wider-than-expected decline in August's producer price index (PPI) number. Despite thin volume during the morning hours, the major indices hovered in the black, awaiting the 2:15 interest-rate decision from Ben Bernanke and the Federal Open Market Committee.

Pleasantly surprising even the doves among us, the rate-setting board made an aggressive rate cut of 50 basis points to 4.75%. And ... they were off. Nearly all market sectors closed in positive territory, led by strong gains from the housing and financial-services groups (areas that have been most adversely affected by the recent credit crunch and subprime woes).

By the time the closing bell sounded, the Dow Jones Industrial Average (DJIA) had gained 336 points - the blue-chip index's biggest single-day jump in almost half a decade. With 29 of its 30 components closing above break-even - Boeing (NYSE: BA) was the lone exception - the Dow settled at 13,739.4, closing above the 13,700 level for the first time since July 25.

Elsewhere, the S&P 500 Index (SPX) tacked on 43 points, or 2.9%, to 1,519.78. Today marked the index's first close above the psychologically significant 1,500 threshold since July 25. And tech stocks weren't left out of the fun ... the Nasdaq Composite (COMP) rallied 70 points, or 2.7%, to 2,651.7, taking out the 2,650 mark for the first time since July 23. All three of the major market averages ended the session at their intraday highs.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

Today's important stories from TheStreet.com: Cramer's Advice for the Fed Might Surprise You, Top 10 Value Stocks With Increasing Dividends

You know you are in trouble when fans at the big game want to talk about the Federal Reserve's meeting. Well, then again, if you are an Eagles or Giants fan, that's pretty much all that's worth talking about.

The impact, though, is simply too outsized to be trusted. The setup is too hard. The decision is too un-gameable. I haven't liked this setup since we started rallying last week, and I liked it less when we moved up Monday morning.

We have been lucky, ever since the cut in the discount window rate, to live in a world where you might wake up and find that the Fed was taking action. The mystery has benefited every group in one way or another, from the homebuilders to the oil companies.

Enough people have been buying Exxon Mobil Corp. (NYSE: XOM) and Goldman Sachs (NYSE: GS) , or Barrick Gold (NYSE: ABX) and Procter & Gamble (NYSE: PG) to make the last few weeks a pretty good time.

Today, at 2:15 p.m., Ben Bernanke will make an announcement on interest rates. My guess is that he will cut rates by 25 basis points. Yet, with inflation above the Fed's target and economic growth quite healthy, if government statistics are to be believed, the case for a rate cut rests on predictions about the future.

Only Bernanke and his colleagues know what he'll do, but I can envision three scenarios and the market will react differently to each:

• No cut. Leaving the Fed Funds rate at 5.25% would cause investors to sell stocks -- the Dow could drop 200 or more points on such news. With inflation running above -- it was 2.36% in July -- the 1% to 2% range that comforts Bernanke, a case could be made that inflation remains a threat.
• 25 basis points cut. The market seems to expect this so I think the market would trade down modestly after the announcement because there are some people betting that the Fed will cut by even more. It's not clear what evidence the Fed could cite to defend a rate cut. The most recent GDP growth rate was 4% in the second quarter. If the Fed knows that third quarter growth will be negative, it should share those statistics.
• 50 basis points cut. If the Fed really cuts rates to 4.75%, investors will cheer and the Dow could rally between 200 and 300 points. Such a cut, however, would be seen as a bailout to Wall Street interests, and could fuel inflation, slam the already weak dollar, and cause governments and institutional investors to shift their money into bonds backed by the Euro -- thus raising interest rates.

3:30 p.m. update: Bernanke surprised me by lowering rates 50 basis points. As I thought, the Dow responded by rising over 200 points. What shocks me is that from what I've read, the cut is not based on solid evidence that inflation is under control -- oil prices are over $80 a barrel. And the drop in rates could cause oil to climb to $100 a barrel very quickly. Stagflation ho!

When policymakers meet this week, the world is expecting Federal Reserve Chairman Bernanke to make his first interest rate cut since becoming the head man. Will he be bold and go for a 50 basis point cut? Or will he side with caution and drop rates a mere 25 bps? Expect the Fed Head to side on the conservative side with a 25 bps cut.

As the housing market continues to implode and blame, whether correctly or not, gets placed on Greenspan for having dropped rates too low earlier this decade, the last thing Bernanke wants to do is anything that appears to be anything other than incremental. In the 1998 Asian meltdown, the Fed required little change to policy for U.S. markets to rebound and liquidity to open up. It appears with ample money in U.S. money-market accounts and a saving glut around world -- according to Bernanke himself -- money should begin to flow with minor adjustments to policy.

The other factor that will influence policy will be the pricing of debt for private equity transactions. If the first issues of $200 to $300 billion of buyout debt get priced at somewhat reasonable terms, look for the Fed to stay with the minimal drop. Also, if liquidity in the mortgage market does not deteriorate any more, that will further prompt the Fed to be incremental with a 25 bps drop.

The U.S. economy unexpectedly shed 4,000 jobs in August, substantially below its previous 100,000-job gain consensus estimate, the U.S. Labor Department announced Friday.

The August decrease represented the first time in four years that the U.S. economy shed jobs, as measured by the monthly statistic, and it provided another datapoint for economists and analysts who argue that the U.S. economy is headed toward a recession. That fact also reinforced the belief among many economists that the U.S. Federal Reserve will cut short-term interest rates by at least 25 basis point, or 1/4 percentage point, at its September meeting later this month.

Further, the consensus in financial circles is that the U.S. economy has slowed substantially, and may in fact have slowed to anemic levels -- full-year GDP growth below 1.5%. The latter conclusion is supported by the fact July's job gain was revised to 68,000 jobs created -- a July gain that is smaller than was previously reported.

Wall Street's initial reaction Friday was not favorable: at mid-day the Dow was down more than 175 points to 13,185; the NASDAQ was down 44 points to 2,569. Meanwhile, the 10-year U.S. Treasury soared on the belief the Fed would cut rates, with the 10-year yield dropping to 4.38%.

For many analysts, August's job statistic represents another economic "highway traffic signal" indicating that economic growth is slowing to near-crawl levels. These analysts point to sluggish consumer spending, the housing sector correction, tightening credit markets prompted by subprime defaults, and an increase in mortgage delinquencies, in general, as ample evidence of (at minimum) a slowing U.S. economy.

What happens when the stock market gets ugly and people start panicking? Once the logic prevails, investors gravitate toward defensive stocks. These are generally the ones you eat, drink, and smoke, or the drugs you need as well as the personal care products you use. Here are four of the top picks from my 17 defensive stocks, which are performing far better than the market today. These stocks have the lowest P/E ratios and the most stable income streams (in alphabetical order):

• Altria (NYSE: MO) ($67.83; -$0.44; -0.6%) has a 14 P/E ratio and a 4.4% dividend yield. This was also one of Cramer's TOP 2007 PICKS, but for different reasons.
• Anheuser-Busch (NYSE: BUD) ($49.92; +$0.20; +0.4%)as the beer drinkers play -- don't people drink more beer when they are stressed? The 18.9 P/E and the 2.7% dividend yield are better than most beverage plays.
• ConAgra Foods (NYSE: CAG) ($25.53; -$0.04; -0.15%) has a 16+ P/E and its 2.8% dividend yield is higher than most food suppliers.
• Johnson & Johnson (NYSE: JNJ) ($61.76; +$0.10; +0.2%) as one of the more beaten up drug and medical names, plus the personal care products angle. The 17 P/E and the 2.7% dividend yield aren't going to kill you.

We are now in the perfect storm for a rate cut after the jobs numbers this morning posted the first drop in four years. Why does the phrase "Be careful what you wish for ..." keep ringing in my ears for all those who wished for a employment poor report so it would compel the Fed into a rate cut. Probably because the DJIA is down over 200 points today -- all of a sudden the weak data is too weak for comfort levels.

There are always other choices in smaller cap names, but investor mentality tends to go for the strength in numbers. Small caps may also not be familiar enough and so most tend to flock to the go-to names that are more established, hence defensive.

Jon C. Ogg produces the Special Situation Investing Nesletter and he does not own securities in the companies he covers.

Jim Cramer came out on CNBC's Mad Money tonight and said the FOMC meeting today was good. Despite the fact that he was disappointed with the FOMC message immediately, he said it's actually reassuring for 3 reasons:

1. It is good to hear the economy hasn't fallen apart,
2. There is no new news to worry about, and
3. The statement today showed that the Fed has at least gotten out of the clueless phase.

Cramer said this lets the FOMC look at a potential rate cut as soon as October now that they have sort of put inflation on the back burner. But Cramer said he thinks the financial lenders and the homebuilders may actually sell off again and he would use the strength today and yesterday to sell those before they go back down. He noted he likes aerospace and defense, but said tech should do really well after the Cisco Systems (NASDAQ: CSCO) earnings.

At least this wasn't a huge screaming rant. It's also a bit different than his disappointment just 4 hours ago. Historically, things would have to get a lot worse for the Fed to change its stance in just 60 days from a move to a neutral bias. Maybe the Cisco conference call got him jumping, particularly since the raised guidance put shares of the networking giant up to multi-year highs in after-hours. Maybe that will even give Cisco reason to approach what 24/7 Wall St. felt could take Cisco up to $34.00 in summer. Cisco may even end up being the best performer out of his Top Growth Picks in 2007, despite it only being the third growth pick.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Wall Street's consensus regarding the Fed's likely next monetary policy move appears to shifting.
Up until late spring, the Concrete Canyon had, for the most part, projected that the Fed's likely next move would be an interest rate cut. In an effort to reduce building price pressure in commodities, and, by extension, inflation. The Federal Reserve has kept short-term interest rates at 5.25% for about a year. The Fed's tactic has successfully slowed the economy, with U.S. GDP slowing to below 1% growth in Q1, but it has also produced complicated results regarding inflation.

The inflation situation remains "complicated" -- which is Wall Street terminology for "we're not convinced the monetary policy is working on all fronts, yet..." -- because while consumer price inflation remains low in historic terms, core inflation, as measured by the core PCE indicator, remains at the upper-end of the Fed's comfort zone. The most recent reading regarding core PCE indicated it dropped to a 13-month low of 2.0%. True, it dropped, but at 2.0%, that still is higher than what the Fed would like to see.

And that upper-end concern has not been lost on Wall Street, with some major firms shifting their monetary policy outlook.

For example, Stephen Gallagher, economist for Societe Generale, told Agency France Press that he no longer believes the Fed will cut rates -- which only a scant month or so was the consensus on Wall Street -- and instead now believes the Fed's next move will be a rate hike.