Wednesday, January 23, 2008
Fed to the Rescue?
Tuesday was looking REALLY bad. The Futures were down over 70!! The rest of the world had fallen over 5%. The US was shut on Monday for a public holiday so were looking at a huge fall Tuesday to "catch up".
But a massive 0.75% emergency Fed funds rate cut brought stocks back from the brink. The Dow fell 128.11 points to close at 11,971.19. The SPX gave up 14.69 points, closing at 1,310.50. The NASDAQ ($COMPQ) declined 47.75 points to close at 2,292.27.
Stocks got off to a disappointing start Tuesday following large declines in overseas markets. In fact, the Dow fell nearly 500 points in the early going, but the Fed stepped in to provide incentive for the bulls. The Fed announced a 75-basis point cut just a week ahead of its scheduled meeting. Some view this as a panic move, but the news definitely helped push stocks off their lows.
The committee felt that recent economic data justified a large cut. In fact, it was the first emergency cut since the week following 9/11. With housing showing further weakness and manufacturing activity falling, the Fed felt a large rate cut was in order. This puts the Fed funds target rate at 3.50 percent with Fed fund futures also looking for another 25-basis point cut next week.
The Naz officially hit a bear market today when it fell to a point where it was down 20 percent from its October highs. However, the fact that fear spiked so strongly today is providing hope that the stock markets have hit a bottom. The CBOE Market Volatility Index ($VIX) spiked to a high of 37 Tuesday, a level not seen since 2002. Spikes in fear normally coincide with bottoms, which is exactly what the bulls are hoping for.
It will be interesting to see how stocks fare Wednesday, especially following a sharp decline in Apple (AAPL) in after-hours trading. Economic news is light this week, so the focus will turn to earnings with many sector leaders on tap to report this week.
Until next time
But a massive 0.75% emergency Fed funds rate cut brought stocks back from the brink. The Dow fell 128.11 points to close at 11,971.19. The SPX gave up 14.69 points, closing at 1,310.50. The NASDAQ ($COMPQ) declined 47.75 points to close at 2,292.27.
Stocks got off to a disappointing start Tuesday following large declines in overseas markets. In fact, the Dow fell nearly 500 points in the early going, but the Fed stepped in to provide incentive for the bulls. The Fed announced a 75-basis point cut just a week ahead of its scheduled meeting. Some view this as a panic move, but the news definitely helped push stocks off their lows.
The committee felt that recent economic data justified a large cut. In fact, it was the first emergency cut since the week following 9/11. With housing showing further weakness and manufacturing activity falling, the Fed felt a large rate cut was in order. This puts the Fed funds target rate at 3.50 percent with Fed fund futures also looking for another 25-basis point cut next week.
The Naz officially hit a bear market today when it fell to a point where it was down 20 percent from its October highs. However, the fact that fear spiked so strongly today is providing hope that the stock markets have hit a bottom. The CBOE Market Volatility Index ($VIX) spiked to a high of 37 Tuesday, a level not seen since 2002. Spikes in fear normally coincide with bottoms, which is exactly what the bulls are hoping for.
It will be interesting to see how stocks fare Wednesday, especially following a sharp decline in Apple (AAPL) in after-hours trading. Economic news is light this week, so the focus will turn to earnings with many sector leaders on tap to report this week.
Until next time
# posted by Paul @ 3:03 PM 
