Monday’s Market Recap: Fed Hints At Interest Rate Cut

Monday’s market once again experienced relatively high volatility as the Dow (^DJI) traded in a range of 4.8% before settling down 202 points, or 2.42% at the closing bell. All three major indices spiked during midday trading from positive news about September new home sales, but proceeded to fall after the initial bullish run. The S&P (^GSPC) closed down 3.18%, while the Nasdaq (^IXIC) ended the trading session down 2.96%. Today (Monday), an additional 10 banks signed up for government aid, totaling $17.5 billion.

New home sales in September jumped higher than expected, partly because median home prices dropped to 4-year lows. 464,000 homes were sold in September, 2.4% higher than analysts expectations. Most analysts believe this increase might not signify a bottom in the housing market, because this data came before the latest wave of financial turmoil. September home sales in the Northeast and Midwest were down 21.4% and 5.8% respectively, although sales in the South and West rose by 0.7% and 22.7% respectively. Home prices are down 9.1% from last year.

Banks like KeyCorp (KEY), SunTrust (STI), and Capital One Financial (COF) all jumped on the lending bandwagon today by applying for loans through the Treasury’s $250 billion bank infusion, which is attempting to free up cash to ease the credit crisis. The Treasury is willing to add up to 22 banks in the second round of financing. The first round committed $125 billion to nine of the country’s largest institutions. So far the Treasury has committed $34 billion to 15 banks in the second wave.

Once again, the Federal Reserve hinted at cutting the interest rate by up to 50 additional basis points on the October 29th meeting. This rate cut would leave interest rates at the lowest level since 2004. Today, South Korea lowered their interest rates by a historical 75 basis points to try and improve economic conditions. Asian markets got hammered in today’s trading session as the Hang Seng (^HSI) got slaughtered, losing 12.7%. Japan’s Nikkei (^N225) also took significant losses and ended down 6.36%.

European countries ended trading sessions with mixed results as the CAC (^FCHI) and FTSE (^FTSE) drop 3.96%, and 0.79% respectively, while the DAX (^GDAXI) posts a slight increase of 0.91%. Germany’s largest bank, Deutsche Bank (DB), posted a $400 million dollar lost in equity derivatives for the quarter. The bank will most likely resort to employee cuts in the near future.

Crude oil fell 1.89% during the market’s hours on Monday, and is hovering slightly below $63 per barrel. Gold traded in the green again today, up $11.80 or 1.62%. The dollar is moving higher against the euro, but fell from its high of $0.8089, still up on the day to $0.7962. The Yen rebounded off its lows today but is hovering around 94.065.

Verizon Wireless’ (VZ) third quarter profits rose on strong wireless sales, but remained inline with expectations. Earnings per share were up $0.59 this quarter, compared to $0.44 in the same quarter of last year.

Investors withdrew more than $43 billion from Morgan Stanley’s (MS) money market accounts in September, forcing the 4th largest bank to acquire $23 billion of securities from the funds to keep them from going under.

General Motors (GM) and Chrysler remain in talks of a potential merger that could possibly include a third automaker. Inside sources say that GM asked the Treasury to aid in this transaction, Paulson would rather use part of the $25 billion set aside in low-interest auto industry loans, as opposed to funding from the $700 billion bailout. Analysts believe both companies could run out of cash in the next 12 months if no action is taken.

Disclosure: None

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