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.
Swonk said she personally saw it as a sign to buy based on that assumption August 16. I asked Swonk about this in a follow-up interview and the observation says something worth considering in terms of future market behavior. "This is the first time we saw a market correction where it hit the best stocks before it hit the marginal stocks because the marginal stocks weren't even traded," she said.
She also believes this activity by the hedge funds saved the market from further declines because as the quality stocks lost value, bargain hunters stepped back in. "You add to it the tailwind of a cut by the Federal Reserve. It was an extraordinary buying opportunity. It's still a buying opportunity," she said.
Housing data this coming week includes existing home sales for August on Tuesday and new home sales Thursday. The S&P Case Shiller home price index is released Tuesday. "Housing data will be important but it's assumed to be weak," said CNBC's Rick Santelli. "If we get any improvement in existing and new home sales, it will have a major effect on the market."
Durable goods are reported Wednesday. Consumer confidence is Tuesday and University of Michigan consumer sentiment for September is reported Friday. Final second quarter GDP is released Thursday, and personal income and construction spending are reported Friday.
Oil on Fire
Energy markets will be keeping a wary eye on the anticipated clash at the UN over Iran's nuclear ambitions, Iraq and oil. This will be a big focus especially after this past week's record setting move in oil prices. The Iranian president though may not have as much of an impact as he has had in the past. Crude oil was up 4.5% for the week while natural gas was up 3.2% for the week.
"We're used to him shooting his mouth off," said John Kilduff, senior vice president at MF Global. He also said Ahmadinejad is losing influence within his own government. Geopolitical events will stay in the forefront though. "The region seems to be in flux in terms of what's going on in Pakistan and internal pressure going on in Iran."
Last week's run up in oil(and other commodities) coincided with a pretty dramatic move down in the dollar.
"The oil market, like everybody else, was waiting on the Fed. The rate cut has further fueled this reverse lock-step between the dollar and oil prices," said Cambridge Energy Research CEO Dan Yergin. Although oil is priced in dollars, one needs to remember that the United States is only a quarter of the world oil market. Because of the strength of the euro, Europeans are paying the equivalent of about $60 a barrel for their oil. The oil exporters get paid in dollars but much of what they buy is in euros, and they are very well aware of that." .
Yergin, CNBC's global energy analyst, chatted with former Fed Chairman Alan Greenspan on Wednesday evening. (This intimate "chat" was before 1,500 people in Washington and will be aired on C-Span this weekend) Yergin said he asked Greenspan about oil prices. Greenspan said "it doesn't matter much whether oil is priced in dollars or other currencies. What matters is in what currencies the Gulf countries decide to hold their surplus earnings in. Do they keep it in dollars or move into the euro?" said Yergin.
CNBC's Jim Goldman will be covering the Digital Life Expo, starting Thursday in New York. It's the biggest consumer electronics show for consumers. Another big story on the tech beat that Goldman will cover is the release of Microsoft's Halo 3 Tuesday at 12 a.m. Microsoft launches the game with much fan fare, including futuristic tanks roaming Times Square.
"Halo 3 should generate more revenue than (summer movies) "Shrek," "Spiderman" and "Pirates" combined, and will be the catalyst for Xbox 360 this holiday season. Two million Xbox users haven't traded up to Xbox 360 yet," said Goldman. "This should get them to do it. If Microsoft is going to be a success in gaming, against Sony and Nintendo, it all comes down to this game title."
Other events include a UBS health care conference Monday through Thursday. CSFB's Chemical conference is Tuesday through Thursday. Thomas Weisel has a consumer conference Tuesday and Wednesday. There are also a few earnings reports due this coming week, including Discover Financial and Lennar on Tuesday. Bed Bath and Beyond reports Wednesday, and KB Home and Rite Aid report Thursday.
Market Insider will be back on Tuesday. Have a good weekend.