Weekly US Markets Update and Outlook
Stocks turn to Federal Reserve to ease the pain
Bear Stearns bailout spooks investors, a reminder that credit crisis runs deep
Marketwatch: U.S. stocks next week will turn to the Federal Reserve, hoping it will deliver hefty cuts in interest rates after concerns about the possible collapse of investment firm Bear Stearns on Friday dashed investors' hopes that the end of the credit crisis gripping global markets was in sight.
Bear Stearns jolted markets Friday, saying that liquidity, or the company's ability to fund its businesses, had "deteriorated significantly" in 24 hours. The 85-year-old investment firm, deserted by its clients and counterparties, was forced to accept an extraordinary bailout package from the Federal Reserve and banking giant J.P. Morgan Chase The move failed to reassure investors, who saw it as yet another sign of how serious the credit crisis that started with bad home loans last summer has become.
Shares of Bear Stearns plunged 47% on Friday, taking its financial peers down along with it, as well as the broader market.However, the market finished little changed on the week, with the Dow gaining 0.5%, the S&P 500 down 0.4%, and the Nasdaq basically flat.
Investors can expect more news from the ailing financial sector next week, with Bear Stearns posting quarterly results Monday after the close, followed by fellow investment firms Goldman Sachs on Tuesday, and Morgan Stanley on Wednesday.
Confidence in Fed
After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2% from the current 3%.
But some investors said that confidence in the central bank's ability to turn the credit crisis around has begun to ebb in the market. Friday's action marked a dramatic turnaround for the market, which had surged on Tuesday when the Fed announced extraordinary measures to boost seized-up credit markets. The Dow rallied over 400 points, while the S&P and Nasdaq saw their biggest one-day gains in more than five years.
The big rebound had led some investors and analysts to observe that a bottom may be near in the market. On Thursday, those hopes were further boosted by a report from Standard & Poor's, which said that the bulk of write-downs linked to bad home loans was probably behind for banks.
The market had managed to overcome concerns over the collapse of another financial institution, Carlyle Capital, a bond fund affiliated with private-equity firm Carlyle Group.
The slumping U.S. dollar, which reached new record lows against the euro and multiyear lows against the Japanese yen, led to another surge in Treasury bonds and in the price of gold, which topped $1,000 an ounce. The Fed lowering interest rates much further, which results in flooding the system with U.S. dollars, further pressures the U.S. currency against its major counterparts, and leads to less confidence in the value of holding U.S. assets.
Recession
All the worries about financial institutions and credit markets, meanwhile, are being compounded by the belief of many investors, analysts and economists that the U.S. economy is headed toward, or has already entered into, a recession.
Next week, investors will turn to more economic data.
Monday will see the release of the New York region manufacturing survey for March, and the National Association of Home Builder index for March. Besides the Fed meeting, Tuesday will bring data on new residential construction in February. On Wednesday, producer prices and industrial production data for February will be released. Thursday will bring data on weekly jobless claims, leading indicators for February and the Philadelphia region manufacturing survey.
Light at the end of the tunnel?
According to David Rosenberg, chief U.S. economist at Merrill Lynch, increasing acceptance by markets that a recession is at hand might mean that a turn-around in markets might not be far around the corner.
In a note, Rosenberg pointed out that a recent Wall Street Journal showed that 71% of economists believe the economy is heading for recession, with 53% predicting a first quarter contraction and 45% seeing one in the second quarter as well.
He also made reference to the front cover of the latest BusinessWeek, which reads "Waking up to the recession." "That is the most obvious sign that a lot of what we have been talking about for the past year has now become mainstream thought and priced in, or at least largely priced in," Rosenberg wrote. "It is time to start focusing more on what could turn us bullish."
However, the Merrill economist said that predictions the recession will be mild might continue to prevent the market from complete capitulation, which would be needed for the market to turn around.
Weekly KLSE Update and Outlook
"The 9.5% massive decline in a single day was attributed to panic selling in response to worries over political uncertainty. Since the KLCI has been falling this year, its MACD is entrenched in the bearish territory. However, its RSI is oversold and the KLSE is attempting to stage a technical rebound. As the overall market undertone is weak, would it merely be a dead cat bounce or would it be excellent buying opportunities? I Capital thinks the latter makes more sense". (I Capital)
Stocks turn to Federal Reserve to ease the pain
Bear Stearns bailout spooks investors, a reminder that credit crisis runs deep
Marketwatch: U.S. stocks next week will turn to the Federal Reserve, hoping it will deliver hefty cuts in interest rates after concerns about the possible collapse of investment firm Bear Stearns on Friday dashed investors' hopes that the end of the credit crisis gripping global markets was in sight.
Bear Stearns jolted markets Friday, saying that liquidity, or the company's ability to fund its businesses, had "deteriorated significantly" in 24 hours. The 85-year-old investment firm, deserted by its clients and counterparties, was forced to accept an extraordinary bailout package from the Federal Reserve and banking giant J.P. Morgan Chase The move failed to reassure investors, who saw it as yet another sign of how serious the credit crisis that started with bad home loans last summer has become.
Shares of Bear Stearns plunged 47% on Friday, taking its financial peers down along with it, as well as the broader market.However, the market finished little changed on the week, with the Dow gaining 0.5%, the S&P 500 down 0.4%, and the Nasdaq basically flat.
Investors can expect more news from the ailing financial sector next week, with Bear Stearns posting quarterly results Monday after the close, followed by fellow investment firms Goldman Sachs on Tuesday, and Morgan Stanley on Wednesday.
Confidence in Fed
After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2% from the current 3%.
But some investors said that confidence in the central bank's ability to turn the credit crisis around has begun to ebb in the market. Friday's action marked a dramatic turnaround for the market, which had surged on Tuesday when the Fed announced extraordinary measures to boost seized-up credit markets. The Dow rallied over 400 points, while the S&P and Nasdaq saw their biggest one-day gains in more than five years.
The big rebound had led some investors and analysts to observe that a bottom may be near in the market. On Thursday, those hopes were further boosted by a report from Standard & Poor's, which said that the bulk of write-downs linked to bad home loans was probably behind for banks.
The market had managed to overcome concerns over the collapse of another financial institution, Carlyle Capital, a bond fund affiliated with private-equity firm Carlyle Group.
The slumping U.S. dollar, which reached new record lows against the euro and multiyear lows against the Japanese yen, led to another surge in Treasury bonds and in the price of gold, which topped $1,000 an ounce. The Fed lowering interest rates much further, which results in flooding the system with U.S. dollars, further pressures the U.S. currency against its major counterparts, and leads to less confidence in the value of holding U.S. assets.
Recession
All the worries about financial institutions and credit markets, meanwhile, are being compounded by the belief of many investors, analysts and economists that the U.S. economy is headed toward, or has already entered into, a recession.
Next week, investors will turn to more economic data.
Monday will see the release of the New York region manufacturing survey for March, and the National Association of Home Builder index for March. Besides the Fed meeting, Tuesday will bring data on new residential construction in February. On Wednesday, producer prices and industrial production data for February will be released. Thursday will bring data on weekly jobless claims, leading indicators for February and the Philadelphia region manufacturing survey.
Light at the end of the tunnel?
According to David Rosenberg, chief U.S. economist at Merrill Lynch, increasing acceptance by markets that a recession is at hand might mean that a turn-around in markets might not be far around the corner.
In a note, Rosenberg pointed out that a recent Wall Street Journal showed that 71% of economists believe the economy is heading for recession, with 53% predicting a first quarter contraction and 45% seeing one in the second quarter as well.
He also made reference to the front cover of the latest BusinessWeek, which reads "Waking up to the recession." "That is the most obvious sign that a lot of what we have been talking about for the past year has now become mainstream thought and priced in, or at least largely priced in," Rosenberg wrote. "It is time to start focusing more on what could turn us bullish."
However, the Merrill economist said that predictions the recession will be mild might continue to prevent the market from complete capitulation, which would be needed for the market to turn around.
Weekly KLSE Update and Outlook
"The 9.5% massive decline in a single day was attributed to panic selling in response to worries over political uncertainty. Since the KLCI has been falling this year, its MACD is entrenched in the bearish territory. However, its RSI is oversold and the KLSE is attempting to stage a technical rebound. As the overall market undertone is weak, would it merely be a dead cat bounce or would it be excellent buying opportunities? I Capital thinks the latter makes more sense". (I Capital)
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