Market Insider/Wednesday Look Ahead
Buyers came back to Wall Street in a big way Tuesday, igniting a sharp rally and new debate about whether stocks have bottomed.
But the afterglow from yesterday's rally faded as stocks head lower ahead of the open. Worries about new write downs at European banks are pressuring stocks in Europe after Asian markets rallied. The dollar is weaker after yesterday's gains.
One highlight today is Visa's $18 billion IPO, the biggest ever. Visa is exciting investors who saw one of the biggest bump ups in the financial sector in eight years Tuesday as S&P financials rose 8.5 percent.
The IPO priced at an aggressive $44 per share, well above the expected $37 to $42 per share range. The offering is seen as an important referendum for the market and a plus for the banks offering the shares. Otherwise on Wednesday, there is no economic data for the market to consider though Morgan Stanley earnings were reported ahead of the opening.
Morgan reported net of $1.55 billion, or $1.45 per share for the first quarter, compared to $2.31 billion ro $2.17 per share the year earlier. The results were better than the $1.03 per share expected by analysts.
Stocks had one of their best days in years Tuesday, with the S&P 500 gaining 4.2 percent, in its biggest percent gain since Oct. 15, 2002. The Dow chalked up 420 points to 12,392 in its second 400-plus point day in a week, while the Nasdaq scored 4.2 percent in its biggest gain in five years.
"I'm actually using the word bottom -- one that should hold us and let us go higher," said "Mad Money's" Jim Cramer on his show Tuesday night. He's not alone.
Tuesday's action doesn't mean the market won't be without its bumps and volatility, but it certainly was a day of encouragement for traders.
David Kotok of Cumberland Advisers said he is totally invested in stocks now and says the market has successfully retested January's lows three times. "You've got to be in the stock market now," he said. "You've got to own them. The one thing you don't want to own is cash."
Kotok, a CNBC contributor, said he bought the Financial sector Select SPDR Fund, just before it soared 8 percent in Tuesday trading. "This Fed has got it, which means they will drive the credit markets to function, narrow risk premiums. We've seen this in the last few days. They have only been at this for nine weeks. I think this is the new Fed, which realized credit markets must function first ... and is just as likely to fight inflation and take rates up once it's cleared," he said.
"Three months from now, if we're going to go into a deflationary slump, that market could go back down and test it again. If the Fed is successful, it will not," he said.
Michael Painchaud, director of research and principal with Market Profile Theorems sent us a note after the bell, updating his latest market call. "... we see the price action of the past seven days as confirming the January lows, and have raised our probability that the DJIA will revisit the 13,150 area by May of this year. In fact, we would not be surprised to see the 13,500 attained," he wrote. Painchaud pointed to supportive insider buying behavior and confirming behavior in two of his models.
There were two big drivers in Tuesday's market. One was the earnings of financial companies, Goldman Sachs and Lehman , which were both better than expected. While lower than last year's profits, neither included any bad surprises. "No matter what the Fed did today, if you didn't have the results that Goldman and Lehman came in with today, it really wouldn't have made much of a difference" because people would still be afraid another shoe would drop. "The confluence of that together is really what drove it," said Pete McCorry, who trades bank stocks at Keefe Bruyette.
"You were seeing at the end of the day, it was not just a short covering rally, but some real buying," he said.
Goldman Sachs yesterday put Morgan on its conviction buy list and put a buy on Lehman. Lehman stock popped, recovering the losses of the last two sessions, as its management seems to have assured investors it is not another Bear Stearns, about to fail. Lehman CFO Erin Callan, in fact, said on "Closing Bell" the Fed's action to let investment banks go to the discount window was a big help to the firms and that Lehman would take advantage of it.
There was also another big factor at work in Tuesday's market. Although the Fed disappointed traders who were looking for a full percent cut, it seems to have gained credibility both from its rescue of Bear Stearns and other actions this past weekend and with its rate move. The Fed cut 0.75 percent and pointed to its double concerns about the slowing economy and increasing inflation.
"The Fed is telling you monetarily, fiscally, legislatively, and if they have to, globally in joint effort with other central banks, that they've got their arms around it," said McCorry.
Marketinsider will be on holiday through Monday, March 24. We'll see you again on Tuesday, March 25.
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