Monday, September 10, 2007

Counting on the Rate Cut

In the wake of last week's poor jobs report, investors have panicked a little. But the real panic will come if the Fed doesn't cut interest rates at its upcoming meeting. Stocks are being held up on the very likely idea that rates will be cut. This also depends on how much rates are cut as well.

We all know why this is happening. It has been covered for weeks. Now it seems that its a waiting game to see:

1)What the Fed does with rates
2)If things get worse (for example, a lender or homebuilder goes bankrupt) or
3)If the situation blows over.

If we get more "headline grabbing" stories, then we will be headed lower. Stocks can go down if things are actually bad, or if they appear bad. If things stay quiet, stocks will creep back up like a few weeks ago.

Overall though, the see-saw battle should continue. Obviously M&A activity has quieted tremendously as credit has been drying up, or at least appearing to be. Many stocks are relatively undervalued, and funds have been buying on the idea of this being just a small correction.

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