Reply #103: end of sucker-run-up day numbers

[UpInArms]

Dow 8,924.14 359.61 (4.20%)
Nasdaq 1,589.89 81.55 (5.41%)
S&P 500 913.18 44.61 (5.14%)
10-Yr Bond 2.363% 0.17

NYSE Volume 6,774,660,500
Nasdaq Volume 2,267,995,500

4:40 pm : The Federal Open Market Committee's decision to slash key lending rates and make a commitment to remedy the ailing U.S. economy bolstered investor optimism and sent stocks sharply higher. The major indices traded in positive ground for the entire session and finished just off their session highs.

The FOMC was expected to slash its fed funds target rate by 50 basis points Tuesday, which would have brought the overnight borrowing rate banks charge one another down to 0.50%. Instead, the FOMC stated it is targeting a fed funds rate ranging from 0.00% to 0.25%, though the effective fed funs rate was already within this range ahead of the decision.

The decision to make the cut was unanimous and marks the first time the target rate has been below 1.00% in 50 years.

The highly stimulative rate is intended to help the economy get on track toward growth. The FOMC stated that data that indicate deteriorating labor conditions and declining consumer spending, business investment, and industrial production, and the outlook for economic activity has weakened further. However, the FOMC acknowledged it will essentially employ all available tools to promote sustainable economic growth and help relieve strains in the financial system.

The U.S. dollar dropped precipitously after the FOMC made its statements. A weak economy and low interest rates hardly bode well for the strength of the currency. In turn, the Dollar Index fell 1.9%.

Despite the struggles of the economy and the financial system, financials (+11.3%) outperformed for virtually the entire session. The sector's advance came even though Goldman Sachs (GS 76.00, +9.54) posted a larger-than-expected quarterly loss, and had its credit rating downgraded to A1 by Moody's. Investors had been long expecting a loss, sending shares lower in each of the five preceding sessions.

Best Buy (BBY 27.68, +4.21) helped contributed to early-morning optimism by issuing better-than-expected earnings per share results in-line guidance for 2009.

General Electric (GE 17.92, +0.97) caught a bid after it reaffirmed its outlook for the fourth quarter and fiscal 2008, though it said it will no longer provide quarterly guidance. GE also reiterated its dividend, which has been a point of concern for many investors.

Oil prices have also been in focus with OPEC meeting tomorrow. A cut of approximately 2 million barrels per day is expected, but crude futures for January delivery shed $0.96, or 2.2%, to settle in at $43.55 per barrel. Crude futures had been up as much as 4.5%, but energy traders appear to have fully digested the prospect of a production cut.

In addition to OPEC's decision, energy traders will also contend with the latest inventory data from the Department of Energy, which is due tomorrow morning.

Despite the drop in oil, precious metals found favor again as February gold and March silver advanced. Gold added $6.20 to trade at $842.70 per ounce, while silver added $0.085 to hit $10.705 per ounce.

November CPI dropped 1.7% month-over-month and pulled the year-over-year increase in CPI down to just 1.1%. Both rates were below expectations. The core rate was flat in November and follows a 0.1% decrease in October. The downtrend in CPI has a negative side as it reflects weak economic demand, but there are also clearly benefits in terms of increasing the value of financial instruments.

Housing starts data for November declined 18.9% from the prior month to an annualized rate of 625,000 units, which was below the consensus of 736,000 and are 47% below the year-ago level. The November decline is the largest drop since March 1984.

Building permits, meanwhile, declined 15.6% to a seasonally adjusted annual rate of 616,000. That was also below the consensus of 700,000. DJ30 +359.61 NASDAQ +81.55 NQ100 +5.2% R2K +6.7% SP400 +6.1% SP500 +44.61 NASDAQ Adv/Vol/Dec 2220/2.25 bln/633 NYSE Adv/Vol/Dec 2681/1.54 bln/477