Friday, February 15, 2008

Writedowns, Earnings, Sentiment All Weigh On The Market

The market closed at its lows yesterday after bond insurer FGIC lost its AAA rating at Moody's, and was downgraded a notch. This hit the financials, and weighed on the overall market as selling picked up.

Yesterday's big move down was also likely due to the fact that we are in an options expiration week, which typically sees at least one big down day. Yesterday's action certainly fit that bill.

Today, UBS said that it may write-down an additional $203 billion, due to the bond insurance credit crisis. That's quite a figure, and is pressuring the bank index. The brokers were down also, due to some earnings estimates cuts by analysts, but they seem to be shaking off the early weakness as I type this.

Best Buy (BBY) lowered its FY08 earnings guidance this morning, and the stock is trading down. Also, the University of Michigan Sentiment survey dropped to a low reading of 69.6. So sentiment is low right now, which is what you would expect at this point in the economic cycle.

But the main question remains how much of this is already discounted by the sharp decline in stock prices? We know that stocks will bottom and quickly start moving higher well before the economy, and well before these economic data reports show any improvement.

Oil is higher again today, now over $96. This should continue to support all of the oil, ag, and infrastructure themes we have mentioned recently. Asian markets were mixed overnight. And bond yields are off slightly, with the 10-year yield at 3.78% after a big move higher yesterday.


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