Yesterday’s mega rally was described as “survivor’s euphoria” by Bill O’Donnell, a strategist at UBS. As stated in my Vernal Equinox post, “stock market volatility gyrates from hope and euphoria to massive panic, with sentiment highly influenced by rumors and ‘happy talk’ from the Federal Reserve and the Bush administration.” With the Moon in Virgo today, let’s dissect some of the key drivers of yesterday’s market.
In my Weekly Forecast for March 18, I predicted that the market was “likely to be down on reports of further write downs projected or to be taken.” My forecast was based on the alignment of Mercury and Mars. This represents news that investors sharply react to. Due to Mars retrograding in Cancer, this aspect previously occurred on November 19, 2007. Markets were sharply down that day after a Goldman Sachs (GS) report forecast the financials face $48 billion in write downs by the end of 2008. Citigroup (C) forecast a $22 billion write off split between $11 billion in the fourth quarter of 2007, and the other half taken in 2008. The difference then was Mercury (news) was in Scorpio, the sign of debt/lending. Mercury is now in Pisces. Mercury in this sign brings news of rumors, deceit, hope, and euphoria – whether real or imagined. One factor I covered up by stupidly sticking a post-it note on top of my chart, was Mercury harmonizing with the USA Jupiter in Cancer yesterday. Unless overruled by other factors, this usually creates an up market, as Jupiter creates big moves resulting from overblown reactions to market happenings.
The indices opened strong, with the DJIA up 200 points in the first three minutes of trading, after investment banks Goldman Sachs and Lehman Brothers (LEH) released first quarter earnings. Goldman lost $2 billion on mortgages and credit products, but beat expectations in commodities and asset management. It was the first decline in year over year earnings for GS in 11 quarters. GS closed up $24.57 to $175.59. Lehman announced a 57% profit drop on fixed income losses. LEH closed up $14.74 to $46.49, a record one day gain. The “survivor’s euphoria” refers to the fact that on March 16 the Federal Reserve now allows primary dealers to bring “a broad range of investment- grade debt securities” to the discount window at the Fed’s 2.50% discount rate. (If the Fed had taken this action before last Friday’s market open, the fate of primary dealer Bear Stearns might have taken a different course.) Lehman’s CFO Erin Callan described the Fed’s action as “a great opportunity to do more client business.” The market ignored her comment during the earnings call that Lehman “doesn’t anticipate market conditions to improve anytime soon.”
At 2:15 PM, the FOMC released its statement on interest rates. Indices began to weaken after the Fed announced a 75 basis point cut in fed funds to 2.25%, when many expected a full percentage point decrease. The market also didn’t like additional inflation concerns inserted into the statement, along with the fact that two members voted against the largest interest rate cut by the Committee since 1994.
I think the market began to realize that the Fed inserted the inflation remarks as an effort to revive the ailing dollar. Comforting phrases such as “downside risks to growth remain” and “the Committee will act in a timely matter as needed” was still there, indicating the helicopter engines are still running and ready for liftoff.
Yesterday’s stock market entry additionally forecast “Improving conditions around 2:30 PM.” This was because the Moon in Leo was going to exactly oppose Neptune at 2:39 PM. Lunar aspects start influencing the market a bit before they are exact. At 2:38 PM, the indices began rapidly climbing higher after President Bush said during a speech in Jacksonville that “they'll (Bernanke and Paulson) continue to closely monitor the markets and the financial sector. And the point I want to make to you is, if there needs to be further action we'll take it, in a way that does not damage the long-term health of our economy.”
As CNBC’s Bob Pisani commented after the market closed, a lot of the rally was due to short covering as well. Bear Stearns (which closed at $5.91) was a “watershed” moment for the market, which Treasury secretary Paulson used as the catalyst to inspire the market to rally on the belief that the big problems in the financial markets are over. For now.
Financial Times: “’Survivor’s euphoria’ may be only short lived”
Bloomberg: “’Big Rally’ for Stocks to Continue, Jim Rogers Says” (don’t let the title fool you)
Wall Street Journal: Editorial: “Inflation Dissent”
USA: July 4, 1776 5:10 PM LMT Philadelphia, Pennsylvania