The Diving Market Came Back To Life

It looked like Armageddon as the Dow dropped almost 800 points during the day yesterday but it came back to fall only 370. The professional traders heard rumors and anticipated a cut in interest rates by the Federal Reserve Bank. The Fed is likely to cut rates as much as 3/4 to 1% to try and force banks to lend to each other which might loosen up the credit markets a little. We can also expect many countries to start to cut rates in order to improve the global credit bind we find ourselves in. This kind of coordinated action could propel stock markets to rally but I would expect it to be short lived.

Leverage needs to unwind and financial institutions still need to be recapitalized. The last I looked the economy is falling off a cliff everywhere. This market will bottom before the economy turns positive but stocks need to get decimated before that happens. Value will be created in some stocks everyday but massive selling needs to occur before the stock market as a whole can begin a new upward trend.