Monday’s Market Recap: Fed Expected To Announce Rate Cut On Tuesday

Markets closed Monday with bearish activity, as more news came out on the scandal involving Veteran investment manager Bernard Madoff. The list of those exposed to the Ponzi scheme grew as several banks and individuals were added. All three major Indexes suffered losses. The Dow (^DJI) was down 0.75% and closed at 8,564 points for the day. The Nasdaq (^IXIC) and S&P 500 (^GSPC) were down 2.10% and 1.27% respectively. The Nasdaq finished at 1,508 points, while the S&P finished at 868 points. In the smaller stock index, the Russell 2000 (^RUT), investors traded down as well losing 3.76% and closing at 450 points. In international trading, Britain’s FTSE 100 (^FTSE) dropped 0.07% while Japan’s Nikkei 225 (^N225) was up 5.21%.

The Fed reported that industrial production for the month of November went down 0.6% and that manufacturing output went down 1.4%. The Fed is expected to announce another rate cut Tuesday which could potentially take the benchmark rate to below 1%.

Oil prices went down to $44.51, declining 4% on the day. Natural gas settled at $5.69 after a slight rise. Gasoline and heating oil futures settled at $1.04 and $1.46 respectively.

Honeywell International (HON) announced the expect profits to fall for the upcoming year anywhere from 6% to 16%. Honeywell cited the slowdown in the United States will hurt construction, aviation, and automotive industries. Honeywell expects to make earn $3.20 to $3.55 per share compared to a forecast of this year which is closer to $3.80 per share.

As US auto sales continue to plummet, Toyota Motor (TM) announced that it was going to suspend work on a new plant in Mississippi. The construction of the building is planned to be completed, but no equipment installation or further work will be done until further notice.

Financial stocks in the S&P 500 lost a combined 3.8% on the trading day. JPMorgan Chase and Co. (JPM) took a big hit as Merrill Lynch downgraded them from “buy” to “neutral”, citing that the credit markets in the US would be getting worse in the future.  Many analysts are still wary of issuing buy ratings on financial companies as no one has an exact idea of how bad the situation will become.  It may take many months or years before sentiment turns, and this could prolong the depressed US equity values.

Disclosure: The fund the author is associated with holds a long position with JPM.

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