Market Rally Towards The Close Of Jan 2008 - Is that the true picture?

The first 5 trading days in this Election Year of 2008 finished down. This has signaled the possibility of a bearish January which in turn a signal of down year for 2008.

True enough, Dow Jones closed at 12,650 on Jan 31, 2008 i.e. DJI is down 611 in Jan 2008. Even the Fed cuts the fed funds rate by 50 basis points to 3.00% and the discount rate by 50 basis points to 3.50% on 30 Jan (Wed) on top of the sudden cut of 75 basis points a week ago, that's not good enough to bring the market up to rally. Do you think the sentiment lifted yesterday due to bond insurer's positive outlook will last? I doubt...

Let's see how will the overall market react today after Google (GOOG), the internet giant, announced disappointing result after market close yesterday. Google tanked $37 to $527.40 after trading hours...

Jan 31, 2008
Dow +207.53 at 12650.36, Nasdaq +40.86 at 2389.86, S&P +22.74 at 12650.36

[BRIEFING.COM] On Thursday, the major indices were able to rally, despite opening sharply lower in the wake of a disappointing unemployment claim report. Sentiment was lifted due to a bond insurer's positive outlook. This is in contrast to Wednesday, when concerns over bond insurers caused the stock market to give up all of its FOMC induced gains.

The major indices finished modestly off their highs on a report released with five minutes left in the session that said Standard & Poor's put MBIA's (MBI 15.50, +1.54) credit rating on negative watch and downgraded FGIC to AA from AAA. Yesteday, Fitch cut FGIC's rating, so its downgrade was not surprising. S&P affirmed Ambac's (ABK 11.64, +0.79) AAA rating.

Despite the S&P report, the major indices still finished sharply higher, led by financials (+2.7%), retailers (+4.4%) and consumer discretionary (+3.4%). These three areas were the main laggards in 2007, and stand to benefit from the recent rate cutting cycle. The Dow, Nasdaq and S&P all closed 3.3% above their session lows.

Bond insurers weighed on sentiment in the early going after MBIA reported a larger than expected loss. MBIA said it had an operating loss of $3.38 per share in the fourth quarter, compared to a profit of $1.16 a year ago.

Sentiment then turned positve, as MBIA led financials and the broader market higher. MBIA's conference call, which lasted four hours, eased traders' uneasiness.

Specifically, the company acknowledged it will have significant losses, but nothing to justify the 80% decline in the share price since last year. The company said its capital plan will exceed all AAA rating requirements. It said a downgrade would impact capital by $100 million to $200 million in a worst case scenario. The company said it will not be forced into bankruptcy and that it is virtually impossible to imagine a situation where MBI would become insolvent.

In economic news, a Dept. of Labor report showed jobless claims for the week ended Jan. 26 jumped to 375,000 from 306,000. Economists expected 320,000 claims. Stocks opened sharply lower on the report. The knee jerk reaction was overdone, as one week does not make a trend, and Briefing.com expected claims to increase due to seasonal factors.

The Dept. of Commerce said December personal income rose 0.5% and spending rose 0.2%, which were mostly in-line with expectations. Separately, fourth quarter employment costs rose 0.8%, in-line with expectations.

All ten sectors closed higher. Energy (+0.3%) underperformed on a relative basis due to a 0.8% slip in crude oil prices.

..Nasdaq 100 +1.8%. ..S&P Midcap 400 +2.2%. ..Russell 2000 +2.6%. ..NYSE Adv/Dec 2384/776. ..NASDAQ Adv/Dec 2039/966.

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