Market Summary: Mon. Jan. 28, 2008

Although today’s rally doesn’t seem too impressive (major indices up about 1.5%), I think it deserves a little more credit considering what happened to the Asian markets overnight. Hong Kong, Singapore, and Tokyo were down about 4%, and if you remember how we began last week, it was a very good sign today that we didn’t sell off.

Basically, all eyes are on the Fed and what they are going to do Wednesday: no cut, 25 bp, or 50 bp. Currently, the futures market has a 50 bp cut priced in and most are expecting the Fed to act aggressively again (even after last week’s surprise 75 bp cut). At this point, there is no immediate threat of inflation spiraling out of control given that oil has pulled back to about $90 and most commodities sold off hard the last few weeks. I do believe, in the long term, that oil and commodities will continue their bull run, but only after investors regain their confidence and the financial crisis is under control. In the last few statements made by the Fed, they have referenced “deteriorating market conditions” and the “tightening credit markets.” In my opinion, the financial institutions need the rate cut more than the economy does. Currently, the economy is slowing, mainly because individuals are reluctant to spend their money because of the uncertainty in the financial world. If the Fed can make lending easier (notice, I did not say “bail out”) by lowering rates, people – as well as businesses – will resume their spending.

Why did the market go up today? I believe it was due to continued short covering (mainly in the homebuilders and financials) before the much-expected rate cut. We had some mixed macro economic data as well as some mixed earnings reports that would have otherwise caused the market to trade sideways. The housing data was slightly weaker than expected, but once again, expectations are so low for housing it was barely a market-mover. McDonald’s reported good numbers, but their December sales were lower than expected and the stock was down about 6%. At about $50 now, $14 off its high only a month ago, this stock is a bargain. Corning (GLW) posted strong numbers making DLight a happy investor. Halliburton (oil and natural gas company) also beat numbers.

In other news, some big companies have been squeezed by rising costs (aka inflation). Tyson (the chicken company) and Hershey plan to raise prices to offset higher costs. The prices of chickens, cocoa, and sugar have recently skyrocketed. Also, Black & Decker warned that they will experience tighter margins due to higher metal costs.

Also, contributing to the day’s rally was a variety of upgrades of big name companies. Caterpillar, Merck, General Mills, and Kellogg were all upgraded. There was also talk that the Chicago Mercantile Exchange was going to buy the NY Mercantile Exchange.

Tomorrow, we will get the durable orders number. It is basically an indication of how the manufacturing industry is doing. Last month, the number came in lower than expected and investors panicked and everyone starting talking about a recession. I expect choppy trading tomorrow as investors try to position themselves before the Fed reports on Wednesday.