每日市场点评 --- March 17, 2008

There are some days that will be written into the financial history book and today should be qualified as one of them. More precisely, the fall in Bear Stearns will be remembered in a similar fashion as LTCM, Orange County or more recently Enron. Just minutes before the Asian market opened this morning, JP Morgan reached a deal with Bear Stearns and agreed to pay the shareholders of the troubled investment bank $2 for each share. Soon after, the Fed made several significant announcements. It is very rare that the Fed issues announcements on Sunday night and obviously the Fed was trying its best to calm the market before the US market started trading in less than 14 hours.

Despite the efforts taken by the Fed, overseas markets still tumbled badly when they started trading. The Nikkei 225 declined by more than 3% and the stock exchange in Hong Kong lost 5%. Most European markets dropped on average 3 to 5%. The currency market was also in chaos. The US dollar dropped to below 96 against the Yen and 1.58 dollar per Euro at one point. It seems treasuries and gold are the only safe places. Meanwhile, the S&P500 futures reached as low as 1253, indicating a more than 3% lower opening in US. Nervousness is seen everywhere. In fact, almost all economic news this morning was bad but investors were so occupied by the news from Bear Stearns and the Fed that nobody wanted to talk about the economy. Just for the record, the NY Empire State Index came at -22.0, the worst reading since 2001. Industrial Production dropped 0.5%, exceeding a 0.1% contraction expected.

As expected, the market opened sharply lower and at its worst, the Dow was down 194 points. But it showed remarkable resilience ever since the opening bell and at its best, the Dow gained by as much as 125 points. JP Morgan was the biggest winner of the day and it alone was responsible for more than all of today’s gain in the Dow index. Investment banks and commodities were laggards of the day. The former was no doubt dragged by the Bear Stearns news while the latter was hammered after almost a 20-point drop in the CRB commodity index, which marked one of the biggest single day declines in that index. It seems there is some de-leveraging activity ongoing in the commodity market following recent turmoil in the credit market.

There is some good news for bulls after today’s dramatic reversal. The Dow Jones Industrial Average index managed to hold its January intra-day low in today’s trading, which by itself is a very positive sign. However, bulls are not of woods yet as tomorrow can bring an even bigger test. The Fed is going to announce its interest rate decision tomorrow afternoon and currently the market has fully priced in 100 bps cut in the Fed funds rate. The bulls need to pass tomorrow’s test before they can see meaningful gains ahead.