Market Summary: Fri. Jan. 25, 2008

Unfortunately, we were unable to sustain the rally. As expected, we opened higher because of Microsoft’s, Caterpillar’s, and Honeywell’s strong earnings, but we rolled over to finish down on the day. Other than the three earnings reports, there was very little to move the markets and we continued our downward trend that we have been following the past few months.

According to Bloomberg.com, “financial companies are expected to drag S&P 500 members to their worst earnings season since 2001. Analysts estimate the index's average profit excluding some items fell 18 percent in the fourth quarter from a year ago.” Basically, most of the bad news is priced into stocks already, so any good news/upside surprises will move stocks significantly higher.

On thing to note is that the dollar index held up nicely this week (and over the last month or so) despite the surprise fed rate cut and the huge world sell-off. We saw the dollar plunge to all-time lows in recent months, but the thesis then was the global economy would remain strong while the U.S. economy slowed. That’s why investors shifted to other currencies. Now, there is talk of a slowing global economy, so the dollar is relatively stronger to the other currencies than it was a few months ago. Look for stability in the dollar even as the fed continues to cut. The fed cuts will hopefully revive the U.S. economy, so investors could find opportunity to get back into dollars.

Another interesting story surfaced today regarding Apple and their iPhone. Analysts have noticed a discrepancy between the number of iPhones sold and the number of iPhones activated by AT&T (the other international service providers). Apple says they sold 3.7 million iPhones, but only 2.4 million have been activated. Where are the other 1.3 million devices? Read this article to find out.

There has also been criticism of the Fed not acting fast enough to prevent the credit/mortgage crisis from leading to a U.S. (even a worldwide) recession. After the global markets sold off hard Sunday and Monday nights, in a surprise – almost panicked – move, the Fed cut the target rate by 75 basis points. It is very disheartening to see the most influential financial institution in the world panic. Now I can understand why the everyday investor is panicking and why uncertainty exists in today’s market. It will be very interesting to see what the Fed does Wednesday.

When news leaked of this “rogue” trader, it almost seemed like the Fed cut in response to this piece of information. However, the Fed denied knowing about this situation ahead of time.