Market Commentary from March 17th

Despite Tuesday’s huge rally, equities were mostly flat for the week, with the S&P 500 losing 0.4%. Nonetheless, it is a good sign that the Market held recent lows despite a flood of bad news and bearish sentiment.

There is a saying that "it is not the news that matters, it is the reaction to the news." Normally, I would have considered last week’s performance by the Market to be quite bullish. However, we were faced with two big news items during the weekend.

First, Bear Stearns reached an agreement to sell itself to JPMorgan Chase for $2 a share in a stock-swap transaction. Second, the Fed announced two initiatives designed to bolster market liquidity and promote orderly market functioning.

In a bull market, these might be interpreted as bullish (or at least cause a bunch of short-covering). However, we are not in a bull market and I am waiting to see the "reaction" to this news. Expect to hear rumors of other banks in trouble too.

With regard to the sale of Bear, let’s be clear, this was not a bailout; it was an orderly liquidation. For context, Bear’s market value went from $20BB (in January, last year) to $3.5BB on Friday – and the sale to JPMorgan was at just $236MM (millions, not billions).

Remember, because of Good Friday, there are only four trading days this week. Also the FOMC meets on Tuesday, and will announce whether it will continue to cut interest rates. So, I’m expecting an interesting week.

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