The initial reaction was for stocks to jump, but at the end of the day stocks finished slightly lower. At 2:15 the FOMC announced an additional 50 basis point cut in the fed funds target rate. The market was initially euphoric, but a very late selloff spoiled the party. The Dow finished lower by 37, while the Nasdaq finished down by 9 points. The S&P 500 finished down 6.49, or 0.48%. 
Financials were the market leader both to the up and downside this afternoon. In the initial surge they were the leader, but they also led the way lower at the close of the session. American International Group (NYSE:AIG) shares lost 4.34% on the day. Merrill Lynch (NYSE:MER) fell 2.42% and Bear Stearns (NYSE:BSC) lost 3.68% in today's trading. Prudential Financial (NYSE:PRU) lost 2.67% in today's session. Fannie Mae (NYSE:FNM) was weak the entire day, and finished lower by 5.59%.
Energy stocks were also quite weak today, finishing near their lows of the session.The Chinese oil companies were particularly weak today. Petrochina (NYSE:PTR) plunged 4.04% on heavy volume and Sinopec (NYSE:SNP) shares plunged 6.22%. Baker Hughes (NYSE:BHI) shares plummeted 8.61% after a disappointing sales outlook worried investors. Transocean (NYSE:RIG) shares lost 2.64% on the session.
Notable 52 Week Lows
- Wyeth (NYSE:WYE) This big pharma stock lost 2.88% to hit a new low.
- Yahoo (Nasdaq:YHOO) Lost 8.55% on another disappointing earnings report and news of job cuts.
- Amylin (Nasdaq:AMLN) This once hot biotech company has come under significant pressure of later.
I believe that the final reaction to the Fed interest rate cut is somewhat because of the high expectations that I had spoken of before. When 50 basis points is so heavily predicted, we get a case of buy the rumor and sell the news. The other important lesson that investors and traders should learn from Fed meeting days is that the initial reaction is almost always the opposite of the final trade in the market. Right after a Fed announcement the first move is almost always unwound, just as it was today.
Now the big number to watch is the jobs number on Friday. A strong number would help to greatly ease the recession fears.
Aaron - The reaction to the Fed was confounded by the stories about the bond insurers. I wrote about this Wednesday night, suggesting that the market was placing too much emphasis on the problem, and too little on the potential solutions.
Trading for the rest of the week was heavily influenced by news on the monoline insurers, with the market taking the expected course when it became clear that some help was developing.
It will continue to be a focus until more plans for specific insurers emerge. It was (and still is) a chance to play this aggressively.
Posted by: Jeff | February 1, 2008 10:48 PM | Permalink to Comment