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What happened on Thursday to the Financial Markets?

Stock-Markets / Financial Markets Nov 02, 2007 - 02:22 AM GMT

By: David_Urban

Stock-Markets You can say it was a case of Fed hangover. In what has become an odd yet peculiar pattern in the financial markets, the US stock market rushed ahead following the Federal Reserve announcement and then sells off the following day. Thursday's selloff was particularly strong as everyone had a night to reassess the statement and economic data released as well.


On one hand we had the initial 3 rd quarter GDP estimate which came in above estimates at 3.9% with the PCE coming in at a respectable 1.8%. Exports were up at an annualized rate of 16.2% while imports rose by 5.2%. The weak spot was the residential construction component once again, which fell by a 20.1% annualized rate.

On the other hand, we had a Federal Reserve who decided to cut rates and issue a neutral statement in an attempt to assist homeowners who will be refinancing subprime and Alt-A loans next year.

Chicago PMI fell to 49.7 from 54.2 in a surprise to the markets. New orders (53.9 from 56.2), production (46.9 from 58.3), and employment (49.5 from 52) all fell. Some of the fallout can be attributed to the automakers that went pushed production into previous months before negotiations on the new contract started. The biggest shock, however, came from the prices paid index which surged to 74.9 from 59.

Any selloff should be short and brief as I do not expect a long drawn out pullback as of yet. The deteriorating market fundamentals indicated that a pullback was going to happen soon but the large drops in Wall Street are worrisome as is the divergence between the NASDAQ and Industrials. This is beginning to look a lot like the 1997-98 timeframe.

As a side note, there are those that are knocking Goldman Sachs's note on taking oil profits stating that they are pushing the market down. But an astute trader would realize that OPEC added capacity officially on November 1 and that the oil price is trading out of line with historical trends. In addition, capacity has come back on line in Mexico and a new field is about to come online in the Gulf so the supply issues we were having in the US should disappear shortly. This will give the market the opportunity to breathe easier as we enter the winter months

By David Urban

http://blog.myspace.com/global112

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This blog and the author is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.

David Urban Archive

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