Market Summary: Wed. Feb. 13, 2008

What am I currently seeing in the markets (or more importantly, what should you be seeing in the markets)? Tech has sold off very hard the last two months - almost too much. There were very high expectations for tech in Q4 '07 because these companies were supposedly immune to this credit crunch/slowing economy that has become the talk of the elections. Expectations were too high and at the slightest miss of earnings, sales, margins, etc., tech sold off hard and fast. Now we are at the point (or at least we were three days ago) where expectations are too low for tech. Estimates have come down a great deal and the "big money" has pulled out billions of dollars and moved into different sectors - retailers, financials, homebuilders. We've set a bottom for a lot of the big names (Apple and Google) and soon enough the "big money" will make its way back in. For investopedia, I got into tech last week and I'm sticking with it until the earnings estimates start to get bumped up. When the estimates go up, the "big money" will follow and that's when you'll catch the biggest gains. Tech will not get back to the same level it was three months ago, but it will certainly be higher than where it is now.

I think the market is in good shape (until the next Fed meeting) and the only thing holding us back is the mortgage/bond insurers. There is so much uncertainty with them regarding whether or not they have enough capital. Now the financials (Citi, Merrill, JPMorgan, etc.): the major write-downs are behind us, although I do not expect them to go away. The Fed is helping out with the lowered rates so they can actually make a profit when they lend. Currently, the bond market has stabilized (2-year treasuries at 1.9-2.0% and the 10-year at 3.6-3.7%) and it signaling the Fed will have to cut again in March. I believe the Fed will cut again, it's just a matter of 25 or 50 bp. The only real negative thing I have heard is in regard to jumbo mortgage rates -- according to CNBC, rates have actually gone up after the Fed cut 125 bp. It will take some time to actually see the results of the Fed rate cuts. Also, the dollar has stabilized against most major currencies, well off its lowest levels. Oil has also been trading in a range ($85-95) for some time now, mostly because of recession fears and that oil demand will be lower when the economy slows.

On the consumer side, retail stocks have spiked because of the Fed cuts and the stimulus package (just got signed by President Bush today - here's the Bloomberg.com article). You've missed the big move, but long term they still are a good play because they were beaten down so bad the second half of '07. In news today, January retail sales rose 0.3% when analysts were expecting a decline. Here’s an article describing what caused this report to be better than expected. Some people on CNBC said today this report might allow the Fed to keep rates at 3%, but that is mostly likely not the case. The Fed is cutting aggressively to keep the global financial system afloat, not to keep America out of a recession. The Fed just can't look at one backward-looking piece of data - they have to take on a much broader view of the economy's health.

What moved the markets today? Lots of good earnings reports. Coca-Cola's earnings increased 79% year-over-year and revenues increased 24%. Applied Materials (semiconductor) beat estimates and was up 10%. This was the main reason tech was stronger than the rest of the market today and because tech was the laggard yesterday. Deere's profit was up 54%, but their guidance was only "okay" and shares were down about 1%. Venezuela announced they would stop selling oil to Exxon Mobil after Exxon's seizure of Venezuelan assets.

Back to Yahoo! and Microsoft once again. There was news that News Corp. (Rubert Murdoch) might be interested in taking a stake in Yahoo!. Here's the Bloomberg.com article. This move was most likely done to prevent Microsoft from acquiring Yahoo!. I don't know if Yahoo! will take the deal (although nothing has been formally offered) but I can foresee some sort of bidding war between Microsoft and Yahoo!'s shareholders.

Tomorrow, pay attention to Ben Bernanke's testimony to Congress regarding the economy and financial system. He probably won't say anything we already don't know, however, it will be the focus of the day.