It was a great day for the bulls on wall street. Yes you read that sentence right. One has only been able to say that a couple times in the past few months, but today was definitely a day to be a bull. It all started out this morning, with brokerage giants Goldman Sachs and Lehman Brothers reporting their quarterly earnings. Given the Bear Stearns tumble both of these reports had very low expectations. To everyone's surprise both Goldman and Lehman surpassed expectations and had positive things to say in their conference calls. Goldman said that their liquidity situation had never been better and Lehman said liquidity wasn't an issue.
Around the street there were wall street analysts coming out with heaps of positive commens on both Lehman and Goldman. In fact, Goldman CFO David Viniar said he is "totally confident" in Lehman's ability to weather this financial crisis and said Lehman is a very viable competitor. Lehman was probably the bigger surprise of the two, since most saw it as having the highest risk of the rest of the investment banks. It turns out Lehman has been hit hard of course, but it has done a better job of managing its risks than most figured it would. Goldman continues to show that it is the class of the investment banks, the "gold standard" as many like to say. Goldman reported that assets under management surged in the quarter, a very good sign for the future of the firm.
This afternoon the Federal Reserve decided to cut rates by 75 basis points. The vote had two dissenters who wanted a smaller cut. The Fed added some cautionary language on inflation, which would usually cause the market some pause, but today it seemed to phase no one. You can read the full text of the monetary policy statement here.
The markets responded in a huge way to these developments today. The Dow gained 420 points. The Nasdaq charged higher by 91 points. The S&P 500 gained 54 points, a stunning 4.24% move to the upside.
It was certainly the financials that led the way today, as all the major financials surged on strong volume. Wells Fargo (NYSE:WFC) surged 9.59% and American International Group (NYSE:AIG) charged higher by 9.72% as insurance stocks gained significant ground. Merrill Lynch (NYSE:MER) gained 13.23% despite being called the investment bank with the most risk next to Bear Stearns.
Did the Fed make the right move today? There are certainly lots of differing opinions all across the spectrum. There are those who believe the Fed should quit cutting rates all together because of the inflation fears (I'm not one of them). There are also those who think the Fed is way behind the curve. I believe the Fed is now doing a pretty good job of moving aggressively. After all the fed funds rate now sits at 2.25%, very low by historical standards. The only concern I have is that the Fed may be less receptive to anymore rate cuts with the increased talk of inflation fears in their statement and the dissention by a couple board members.
The volume was strong today and the conviction was certainly there. It was a very nice day to be a bull. I hate to end this on such a cautionary note, but I think it would be very prudent to point out that one day does not make a trend in a market and we have a long ways to go in this cycle.
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