This is The Wall Street Digest Hotline Update for Tuesday, January 22, 2008, at 6:00 p.m. EST.
The Bernanke Fed finally woke up, but barely in time to prevent a huge market sell-off today. At the close, the Dow sank 128 points, closing at 11,971, while the Nasdaq fell almost 48 points, closing at 2,292. Oil closed $0.72 lower at $89.85 per barrel, and gold closed $8.60 higher at $890.30 an ounce.
The global stock markets tanked on Monday when the U.S. markets were closed. Global traders lost confidence in the do-nothing Bernanke Fed and the weak stimulus package discussed by President Bush and Congressional leaders. Too little too late is the mantra of Wall Street. Faced with a mounting global crisis and the Dow Futures down 531 points this morning, the Fed cut both the Fed Funds and the discount rate by 75-basis points at 8:20 this morning. The market opened down 464 points.
During the day, interest rates began to rise as the global flight to quality faded. The amazing dollar remained strong, which built confidence in both the U.S markets and the Fed. Gold began to rise when fears of a deflationary market crash faded as stock prices continued to pare losses. The Smart Money, including the CEOs of large corporations, were on the NYSE floor early this morning, ready to purchase shares of their undervalued stocks at the opening bell. Aggressive buying by the Smart Money gave the U.S. stock market a very clear buy signal throughout today’s session.
The Fed helped its credibility a bit today, but the Bernanke Fed almost allowed a global stock market crash. With Fed Funds now at 3.50 percent and the Two-year Note at 2.06 percent, the world is aware that Fed Funds is still 144-basis points too high. Wall Street is telling the Fed to cut another 50- to 75-basis points at the January 30th FOMC meeting.
Let's stay fully invested! The stock market has a long history of impressive gains during election years. The market is oversold, undervalued, and testing support levels. I see a 22 percent move up this year after the January 30 cut rate.
In the U.S., I would continue to avoid the following sectors: financials, brokerages, banks, and the insurance companies. I would also avoid the housing sector. I would not purchase a home or condo, nor would I bottom-fish the housing stocks. The housing market will not bottom during 2008 in most markets.
Stay fully invested! Stock prices in India, Asia and the emerging markets will outperform the U.S. stock market. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, January 25, 2008, at 6:00 p.m. EST.