Market Comments

November 1, 2007


Fund share prices as of: 10/31/07
Fund - G Fund F Fund C Fund S Fund I Fund
12.19 11.68 17.40 21.06 26.31
$  Change - +0.00 -0.05 +0.21 +0.30 +0.38
% Change - +0.00% -0.43% +1.22% +1.45% +1.47%
  L2040 L2030 L2020 L2010 L Income
19.03 18.05 17.14 15.67 13.52
$  Change - +0.20 +0.17 +0.13 +0.08 +0.03
% Change - +1.06% +0.95% +0.76% +0.51% +0.22%


Today's Comments (Short Term Outlook)                             Printer friendly
Fed does not disappoint

Stocks rallied into the Fed announcement yesterday, but as expected, once the 0.25% rate cut was released, the fireworks began.

The 0.25% was the "just right" number investors were looking for and the market did act accordingly, although it was not an instant agreement.

Just before the rate cut announcement the Dow up nearly 100 points.  Shortly after the announcement we saw a quick 130 point decline, followed by a 200-point rally, and finally settling at a 137 gain for the day.  What a ride.  What a day.  What's next?

        

We didn't want to speculate too much on what the market might do after the announcement, but the 0.25% rate cut was very good for stocks and the rally showed us that investors agreed.  As TSP "traders" we couldn't do much to take advantage of the action, but we did mention that the market does tend to give back any big moves after the Fed meeting in the coming days.  It's like a soldier returning from war - there was a lot of action and it can be tough to adapt to "normal" life after all of the action we saw.

One unusual development was that stocks rallied so strongly while bond market sold off more than modestly.  Jason Geopfort at sentimentrader.com had this to say about this dichotomy:     

"I can find five other occurrences of the markets behaving this way on a Fed meeting day (meaning the S&P 500 up 0.5% or more, and 10-year Note Yields also up 1% or more).  The following day, the S&P fell back all five times, by an average of -0.8%.  A week later, it was still negative four of the five times (the one positive was *just barely* in the green), though the average return was only modestly negative at -0.9%.  Mostly, we just saw a lot of chop over the next week, with a downside bias."

- Jason

That would not be an unreasonable reaction but you never know.  It was a very good outcome for the bulls, but will profit taking kick in, in a "sell the news" reaction?
              
One thing I am very interested in seeing is this week's sentiment survey.  It's so important at this time that I will again post it here to get your opinion.

Will stocks continue to move higher next week, or will we see some selling?  Done!

We had a little party over my house tonight with all of the family kids as we do every Halloween, so I am going to cut this short tonight.  History says we have some selling to look forward to in the coming days based on the stocks / bonds discrepancy after the Fed, but seasonality says the first few days of November can be very strong for stocks.
                                 Chart provided courtesy of www.sentimentrader.com
                            
It's a tough call, and it's your call. 

That's all for today.  See you back here tomorrow.
 

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