A Week in the Rearview
In the headlines
A look at some of the market movers over the past week:
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Countrywide‘s (NYSE: CFC) CEO, Angelo Mozilo, announced that he will forgo a chunk of the pay due to him when he retires.
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Analysts cut fourth quarter earnings projections further
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The housing picture continued to deteriorate
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American Express (NYSE: AXP) saw net income drop 10% in the fourth quarter
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The Federal Reserve cut interest rates an additional 50 basis points
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More question marks raised around bond insurers MBIA (NYSE: MBI) and Ambac (NYSE: ABK)
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Starbucks (Nasdaq: SBUX) growth in the fourth quarter was sluggish and the company announced some big changes
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Microsoft (Nasdaq: MSFT) launched a $45 billion hostile takeover bid for Yahoo! (Nasdaq: YHOO)
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New economic data has not been so prettyÂ
Commentary
The spotlight this week was on the US Federal Reserve. The Fed took a lot of heat last week after it decided to make an unusually large intermeeting rate cut of three quarters of a percent, and it followed up this week by whacking another half percent off its target rate, bringing it down to 3%.
In its policy statement, the Fed stressed the turmoil in financial markets, noting the tightening credit markets in particular. It also noted that it appears the malaise in the housing market is seeping into the broader economy and “softening” labor markets.
The move gives us a pretty mixed picture. On the one hand, the aggressive cuts that the Fed has been making suggest that it sees considerable risk to economic growth. The upshot, though, is that the Fed is moving quickly and decisively to try and head off major distress. Though interest rate cuts may not be able to prevent the economy from heading into a recession — if that’s the direction we’re headed — it can help cushion the blow and stave off complications that would deepen a downturn.
After a horrific start to 2008, stocks recovered to some extent after the interest rate cuts. Though the economic picture doesn’t necessarily look pretty over the next six to 12 months, many sectors of the market, notably financials and consumer-related, have already shed considerable value. So the question now is less of whether there will be headwinds (there will), but whether stocks have dropped too far given the likely strength of the headwinds.
Looking ahead
The eventful week passed hasn’t left investors with any clear direction in the near term, and this has manifested in some wild volatility in the markets. It’s not likely that this will abate any time soon either.
Though the near term picture is cloudy, the current down market could present a good opportunity for those investing for longer-term goals like retirement (more on this in an upcoming blog). Though the stock market has historically gone higher over longer periods of time, it has had significant ups and downs in shorter time frames. Investors that continue to consistently invest through these down periods in the market stand to benefit the most when the market starts rising again.
