Stock Futures Show Gains On Fed Rate Cuts

Bill Cara
updated | Author's Website

The Fed has taken decisive action this morning to cut rates in order to relieve pressures on inter-bank lending. Equity futures in NY are showing gains.

Yesterday, the losses on the international equity markets were bad, most of them much worse than NY. The Nikkei 225 index, for example, was down -9.4% on the day, which was the worst since Black Monday October 19, 1987.

In NY, the DJIA (-509.39 -5.11% to 9447.11), S&P 500 (-60.66 -5.74% to 996.23) and NASDAQ Composite (-108.08 -5.80% to 1754.88) were crushed again, but which may have resulted in a final capitulation.

The Toronto Composite (-400.88 -3.92% to 9829.55) and Venture Board (-39.64 -3.50% to 1094.46) fared moderately better. The day before, I noted that the high risk-takers on the Venture Board capitulated with a loss of -12.8%, which I stated may have been a cycle bottom signal.

In NY, all sectors plunged again. The Financials (XLF -10.6%) sank more than twice the degree that non-financials did. Again, there were many margin calls, and much forced selling via hedge fund failures. Banks were calling loans. It could also be that traders finally surrendered their holdings of banks in hopes of seeing the weakest ones fail as the necessary first step to resolving this financial crisis that now threatens to become an economic one.

The relatively best industry group was the Goldminer stocks ($XAU -1.5%), but even they were down with margin calls and the like.

The $USD and $CDW (Cdn Loonie) dropped -0.89% (to 81.00) and -0.34% respectively, while the Euro, Yen and Pound gained +0.50% (to 135.99) , +0.35% and +0.16%.

Crude Oil ($WTIC, moved up $2.25/bbl from 87.81 to 90.06.

$GOLD futures continued to climb, up from 833.20 on Friday morning to 882.00 (+15.80/oz on the day). This morning, the gold futures are at about 900, showing that a strong gold position has been an effective hedge in the market crisis.

Precious metals spot prices at 7:50am ET today vs (i) 7:00am ET Tuesday, (ii) 8:33am ET Monday and (iii) vs 8:38am prices on Friday) for gold, palladium, platinum and silver were: 899.80 (883.16) (856.58) (838.75); 199 (200) (199) (199); 1001 (1008) (987) (956); and 11.70 (11.64) (11.28) (11.16) respectively. So, gold and silver have rallied hard and could be ready for a significant break-out now that the Fed has cut the lending rate.

Overnight, the Asia-Pacific equity markets closed sharply lower, leading to the Fed action: All-Ords of Australia (-4.95% to 4369.8); Shanghai Composite (-3.04% to 2092.2), Hong Kong (-8.17% to 15431.7), India Sensex 30 (-3.14% to 11328.4) and Japan’s Nikkei 225 (-9.38% to 9203.3).

In Europe at 7:45am ET, the French CAC (-1.86%), German (-2.20%) and UK FTSE 100 (-0.48%) also dropped. At 8:27am ET, however, the impact of global rate cuts has sent these markets higher, to respectively -0.10%, -0.90% and +0.64%.

The DJIA futures are at 9663 (+125), not much changed for the past hour. The Crude Oil is a tiny bit stronger in the past hour, now at 88.79, while the Euro is also a tiny bit stronger at 137.37 and the $USD is at 80.845.

Comments & Outlook

I suspect that the precious metal markets are well under the Fed’s control this morning, for a while at least. If the equity market starts to lift as I anticipate this morning, after the initial margin calls and arbitrage trading (with overseas prices), I think the goldminer stocks should have a good day.

Goldcorp (GG +3.39% to 25.91), Barrick (ABX +1.63% to 30.50) and Silver Wheaton (SLW -7.73% to 5.97) are my picks, but many of the others will do well if the $USD continues to fall today.

Overall, though, this is the time to be buying stocks. Averaging the S&P 500 and NASDAQ, the US equity market has dropped -40% in the past 52-weeks. I think the gain from here in the next 52-weeks will be +20% to +25%. With effective option strategies and purchases of stocks of the highest quality companies in Energy, Basic Materials, Industrials and Technology in particular, I believe your portfolios will lift +30% to +40% across the board.

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