Rate cut hopes increased today on the street as Fed Vice Chairman Donald Kohn spoke this morning of the need for the FOMC to take a much closer look at the possibility of future rate moves because of the quickly deteriorating credit markets. Kohn said that the deterioration of the past couple of weeks has surprised him. The market took these words to mean that the Fed will now likely cut rates at its December meeting and possibly in later meetings as well. The Dow finished 331 points higher. The Nasdaq jumped by 82 points. The S&P 500 index 
gained 41 points, or 2.86% on the day.
As one would expect, financials were the biggest benefeciary of the belief that the Fed will move to lower rates. All across the financial industry there was substantial strength. American International Group (NYSE:AIG) rose by 5.93% as part of a strong insurance group. Money Center banks and regional banks were both very strong today as well. Bank of America (NYSE:BAC) gained 4.45% and Fifth Third Bancorp (Nasdaq:FITB) gained 6.25% on the day. Capital One Financial (NYSE:COF), which has been hit hard by credit worries, charged higher by 9.03% today. Not to be outdone, the major players in the brokerage business jumped higher as well. Lehman Brothers (NYSE:LEH) jumped by 8.26% to the lead the group higher.
Basic material stocks were also extremely strong today. Monsanto Company (NYSE:MON) shot higher by 7.8% to lead the major basic material stocks higher. The Mosaic Company (NYSE:MOS) jumped by 8.26%, wiping away most of its losses from the past couple of weeks. Metal mining stocks jumped across the board, reversing recent declines. Southern Copper Corporation (NYSE:PCU) shares gained by 8.17%. Nucor Corporation (NYSE:NUE) and U.S. Steel (NYSE:X) gained 5.36% and 5.91% as part of a strong steel group.
52 week highs
- Merck and Company (NYSE:MRK) Gained 1.73% today and have gained about 10% in the past three weeks.
- Johnson and Johnson (NYSE:JNJ) After a period of underperformance JNJ shares have finally pepped up and have been gaining recently on strong volume.
- Deere and Company (NYSE:DE) This stock held up better than almost any of the other agriculture related plays, and soared 5.56% to a new high today.
- Transocean (NYSE:RIG) The strongest of oil-related plays of late. The company is getting a nice boost from its takeover of GlobalSantaFe.
What a day it was on the street today. Now everyone wants to know whether we have hit the bottom. I think now we must look to the Fed. If the Fed doesn't move in December in a substantial way, the risks are still very much there that those lows from the other day will not hold. If the Fed does act in a large way and moves to cut interest rates, the market may have hit bottom. My personal opinion is that on pullbacks in the next few days a prudent strategy would be to buy into this market, but very slowly. I will be buying a couple best of breed financials as well as looking at some infrastructure plays for my portfolios.
If there was a caveat to today's rally it was that the volume wasn't huge. Volume was far from weak, but it wasn't what one would like to see on a breakout day. The interesting thing is that the volume was extremely high today in the last 30 minutes. What that means I am not sure, but it seems that some big players were making some major bets in the last few minutes. The encouraging part of the rally was that today's rally came on the heels of a nice rally yesterday as well.
Don't let your guard down in this market, and don't sound the all-clear just yet!
Comment Preview