The stock market is no longer like a falling knife. It's become a whole drawer full of flying cutlery.
In Tuesday's market, traders expect extreme volatility to again be the main feature with very little capable of slowing down the global selling spree. Monday's market set all sorts of records as the Dow plummeted below 10,000 for the first time in four years, and the credit crunch continued to chill activity in credit markets.
Fed Chairman Ben Bernanke speaks at 1:15 pm. to the National Association of Business Economists, a group that has been meeting in Washington since the weekend and has had plenty to say about the rapidly failing economy. Bernanke is speaking on the economy and will take questions.
Traders are hoping the Fed chairman will provide more information on an idea that circulated trading rooms Monday afternoon and was given some credit for lifting the stock market out of an even deeper trough.
CNBC's Steve Liesman reported the Fed and Treasury have talked to market participants about additional measures to support the commercial paper market. The decline in commercial paper has been a worry since it is the lifeblood for many companies that rely on short-term borrowing to fund operations.
The Fed also releases the minutes of its last meeting at 2 p.m.
The Fed continues to take extraordinary steps to get credit markets moving and banks lending to each other again. Its efforts have been stymied by the meltdown in Europe's banking system. The Fed Monday doubled the amount it will provide to banks in cash loans to $900 billion. It also said Monday it would begin paying interest on commercial banks' reserves.
But the idea that the Fed could cut rates as early as this week and definitely ahead of its October 29 meeting continues to gain traction. Some traders expect the Fed to join hands with other central bankers and coordinate rate cutting efforts. European finance ministers meet Tuesday in Luxembourg to discuss the financial crises there, and the G7 meets in Washington Friday.
"These are unprecedented levels of cooperation and coordination among central banks," already, said Robert Sinche, head of global foreign exchange at Bank of America. "Coordinated interest rate cuts is really small potatoes in terms of everything else that's been done. There could be a symbolic affect from that I suppose." Sinche said, though, that he does not necessarily expect a coordinated series of cuts and points to the ECB's very recent decision not to cut rates.
"The Fed, in our view, could take out a rate cut between now and the 29th. That's close to the election, and they probably want to do something sooner than that," he said.
On Monday, the dollar rose 2.1 percent against the euro, to a level of 1.3519 per euro, and fell 3.4 percent against the yen. Sinche said the dollar is moving higher for a number of reasons and he expects it to trade more normally at $1.45 per euro by year end.
Sinche said there is a lot of unwinding of positions that require dollar buying. "What you have is a lot of participants in the foreign exchange markets who are undertaking transactions, not because they want to but because they have to," he said.
Tuesday marks the official start of the third quarter earnings reporting season with Alcoa's earnings after the bell. Bank of America's earnings news late Monday may be one more negative factor hanging over the U.S. market open. The bank reported a 68 percent drop in earnings, slashed its dividend, and announced a plan to issue $10 billion in new stock.
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On Monday, the Dow lost a record 800 points before recovering to close at 9955, a drop of 369 points or 3.6 percent, while the S&P 500 fell 42 points or 3.9 percent to 1056. The S&P touched a low of 1007, a level last seen in October, 2003. The last time the Dow closed below 10,000 was Oct. 29, 2004, and the Dow saw its lowest intraday level since Oct. 24, 2003. In early Asian trading Tuesday, Japan's Nikkei 225 fell below 10,000 for the first time since 2003.
Meanwhile, the CBOE's Volatility Index (VIX) rocketed to an all-time high of 58.24, before closing at a record 52.05, as investors bet the market will continue its wild swings. "I think it is too high,'" said Patrick Kernan of Cardinal Capital. "The reason it's so high is because of the panic out there ... especially as we started trading toward a 9 handle on the S&P." Kernan said the VIX, a measure of fear, shows that investors expect a 90 point move in the S&P index.
"One interesting thing about today is we actually saw a lot of selling in longer term volatility," he said. "I guess from an outside investor's perspective, people think there is a horizon for when this will stop. We see it six months out." Kernan trades S&P 500 options at the CBOE.
He expects Tuesday's market to again be bumpy. "Really, we are basically on a straight shot for the moon right now," he said of the VIX. "Everyone got a little complacent a couple months back and volatile was hanging around in the mid 20s area."
Oil Monday was down $6.07 per barrel or 6 percent to $87.81, taking it down 13 percent in four days to its lowest close since Feb. 6. M.F. Global's John Kilduff said if oil breaks the important technical barrier of $86, it could quickly move to $80.
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