Like an orchestra tuning up, financial markets are trying to find the right pitch after theFed's big rate move. The market moves have been dramatic, and for the time being, it's likely they'll continue that way. "If I told you a year ago, we'd have record high oil, record low dollar, 25-year high in gold and effectively record high stock prices, and the Fed cutting 50 basis points, you'd say I was crazy," said CNBC's Dylan Ratigan.
Investors this coming week will have some key data to consider, including housing data, durable goods and consumer confidence. Also, there's a big face off at the United Nations Tuesday when President Bush and Iran's President Mahmoud Ahmadinejad speak to the UN General Assembly.
And there's a big consumer electronics showin New York that will have the latest techie toys, and a few corporate conferences are scheduled. Those will be watched for any hints from corporate executives of whether turbulent markets are having an impact on profits.
The heavy anxiety that hung over the stock market ahead of the Fed's meeting last Tuesday has lifted. The half point cut to the target Fed funds rate temporarily fired up stocksand drove the dollar lower and commodities higher. The rate is now 4.75%.
Meanwhile, the Dow closed up 3.11% for the week, NASDAQ closed 3.02% and the S&P 500 closed the week up 2.8% and gold closed up 3.1%.
"The Fed has taken this massive action. We've had an ecstatic response, and now we just have to wait and see if they are right," said Ratigan. "You'll get some trickle data next week, some housing data. The real story will start to come with earnings guidance." "Its going to be a few months, but the big point is the Fed has made their move and we're going to be on the dark side of the moon together for awhile," he said. "It'll shake out in the combination of whether inflation emerges and when indeed the credit markets normalize and the drag on the economy minimize."
Trimmed Hedges Helped Stocks
Mesirow Financial's chief economist Diane Swonk reminded us of an interesting observation she made about the stock market on "The Call" this past week, and it is worth repeating.
Swonk has said there was something very different about the stock market's latest sell off compared to previous sharp downturns. She said this time, the hedge funds were a big factor but their activity may have helped the market recover faster. She said in August hedge funds had to sell their best stock holdings to get liquid fast at the peak of selling. That depressed some very big, high quality stocks, while sparing the lower quality stocks they could not sell. The end result: Buying opportunity.