the visible hand

it is the theory which decides what can be observed – einstein

Whiplash Wednesday…

Posted by ecoshift on January 24, 2008

A Day of Sharp Swings, and a Final Gain – New York Times
Richard Drew/Associated Press
Published: January 24, 2008

This week, investors were bracing for Black Tuesday. Instead, they got Whiplash Wednesday.

A day after the Federal Reserve slashed interest rates, averting a nasty nose dive in the market, Wall Street watched as the Dow Jones industrial average swung like a yo-yo, diving nearly 250 points in the opening minutes, spending the day in a series of rallies and swoons, then closing up — way up — with a gain of nearly 300 points to snap a five-day losing streak.

Market volatility is near its highest level in five years. In a three-hour span in the afternoon, the blue-chip index ricocheted by almost 600 points.

“The market has this out-of-control feeling, and until the market sees some semblance of stability, it’s going to continue to be very volatile,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research….

There were few obvious reasons for the market’s mood swings. The session started with a plunge after Apple and Motorola, two technology heavyweights, issued lackluster profit forecasts, raising fears about the resilience of corporate earnings in the face of a likely recession.

The reports spooked investors and dragged down the technology sector; Apple shares declined 10 percent, and shares of Motorola fell by nearly twice that amount.

But the markets reversed course around midday. Shares of financial firms, beaten down by months of mortgage-related write-offs, rebounded as investors drove up the stock prices of companies like Citigroup and JPMorgan Chase & Company, which leapt more than 12 percent.

Investors were most likely lured by reports that New York State regulators would work with Wall Street to help rescue a group of bond reinsurers, whose woes have depressed financial stocks for weeks. The aid effort — coupled with the Fed’s aggressive interest rate cut, which was aimed at easing the current credit crunch — might have made the financial sector more attractive, especially to bargain hunters….

Still, some market watchers cautioned that in a time of great uncertainty — with everything from corporate earnings to economic strength to Fed policy decisions shrouded in doubt — a single day’s gain does not make a trend. “This rebound is probably only as good as the next economic release,” said Russ Koesterich, an investment strategist at Barclays Global Investors.

And Sam Stovall, a strategist at S.& P., suggested that the market’s steep swings and afternoon rally might have resulted from a simple rule of finance.

“Even in a bear market environment,” Mr. Stovall said, “you can’t fall every day.”


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