The mortgage plan was given a tepid reception by the markets, but J.P. Morgan's CEO Jamie Dimon, Wall Street's defacto leader and champion, said he thought the plan was "really elegant and really well designed." In an exclusive interview with CNBC's Melissa Francis, Dimon also speculated that J.P. Morgan could modify as many as a million mortgages, up from its expected 600,000 because of incentives in the plan.
"I think people are going to start thinking more about these programs and see where they're going. It almost seems like we retest the lows," said Art Cashin, director of floor operations at UBS. The Dow closed just points above its Nov. 20 low, though the S&P is more than 4 percent above its Nov. 20 intraday low.
Traders have been expecting stocks to test the lows this week. "There's a cycle that indicates that should happen," said Cashin.
Redler said the market could be setting up for one last blow out though some traders think the lows will hold. "As a trader, I think the real feeling is we need one last drastic move lower to get rid of the last weak hands in this market and in order to spark a tradable rally," he said.
Appetite for Corporate Debt
Treasury prices weakened after the Fed Wednesday cut its economic forecast for 2009. It removed the possibility of growth from its outlook, and it predicted the economy will contract between 0.5 percent and 1.3 percent this year. This compares to its earlier view that the economy could contract by 0.2 percent or grow slightly, up to 1.1 percent. The Fed also said it opted against buying Treasurys for now, a comment the market was watching for.
As Treasury prices fell, the yield on the two-year rose to 0.96 percent and the yield on the 10-year rose to 2.75 percent. The dollar continued its climb against the euro with a 0.4 percent move up, and it rose 1.60 percent against the yen.
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The Treasury is expected Thursday to announce the size of its auctions of 2-year, 5-year and 7-year notes next week.
Traders were watching the corporate bond market Wednesday where two major bond issuers came to market for more than $27 billion in new debt. Roche's $16 billion issue was the largest U.S. dollar denominated corporate bond sale in history, according to Thomson Reuters. The offering was oversubscribed and had originally started out as an $8 billion issuance, intended to fund Roche's acquisition of Genentech.
Freddie Mac sold $10 billion in three -year notes, the largest single new issue since Freddie started its global note program more than 10 years ago. While demand was strong for the new issues, spreads widened for other corporates.
"We are seeing good, consistent stable movement back to the process of gearing this debt," said Kevin Ferry of Cronus Futures Management. "We just has a refunding of $62 billion. There could be close to $90 billion (in Treasurys) next week."
Ferry said the appetite for corporate debt has also been good among foreigners, who are buying Treasurys and corporates over issues from government sponsored entities, like Fannie Mae and Freddie.
Ferry said the markets are showing signs of adjusting. "The old way of thinking that you could make large amounts of money without risk is over, and the new world is understanding risk and what it takes," he said.
While on the topic of corporate debt, it's not surprising that State Street launched a new corporate bond ETF last week and another of its fastest growing ETFs is an ETF for junk bonds -- SPDR Barclays Capital High Yield Bond (JNK). Anthony Rochte, senior managing director at State Street Global Advisers, said in an interview that another major trend the firm is seeing is big interest in its SPDR Gold Shares ETF (GLD). "It was below $20 billion at year end and now it's at $28 billion," he said.
Rochte said other trends in ETF investing include a strong interest in dividend investing. He said there's also been growth in global infrastructure.
One's Hot, the Other's Not
Gold and oil continued to move in opposite directions Wednesday, a trend the markets have been following since late November. Oil fell $0.31 per barrel to $34.62, while gold rose $10.70 to settle at $978.20 per troy ounce.