Big week for equities: S&P up 2.0 percent, volatility (as measured by the CBOE Volatility Index) is down 10 percent to about where it was in October.
1) The Bush mortgage plan has reduced short-term risk in financials.
2) The payroll report,while in-line with expectations, clearly shows that job growth is slowing.
3) The productivity report earlier in the week was strong, indicating a somewhat lower inflation risk.
Bottom line: the Fed can cut aggressively—at least 25 basis points immediately—and likely continue cutting. Add to the mix the oversold condition in financials, and strong cash positions, and you have the elements for a strong week.
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