Stocks look to strengthen gains after Bear Stearns drama: Bear Stearns bailout, dollar strength mark a key turn for markets
By Nick Godt
NEW YORK -- Stocks will enter the final week of the first quarter with investors hoping to build on nascent gains scored after the near-collapse and subsequent bailout of investment firm Bear Stearns.
Supportive actions by the Federal Reserve, a stronger dollar, and a plunge in commodities prices all seemed to mark a key turn in the credit crisis gripping markets.
"The Bear Stearns story was kind of like the turn-around everybody was waiting for," said Paul Nolte, director of investments at Hinsdale Associates. "In any crisis, things keep getting from bad to worse until something breaks. In this crisis, something did break and that was Bear Stearns."
After a week rocked by even wilder swings than those witnessed since the start of the year, stocks recovered to post their first weekly gains in four weeks, even if the week was shortened by the Good Friday holiday.
"There are lots of signs that we were very oversold," said Barry Ritholtz, CEO and director of equity research at Fusion IQ. "In a normal cycle, those periods become great buying opportunities."
In times of crises, "the same metrics don't apply," Ritholtz said. But "it's highly likely that we'll have a bounce over the next few weeks, until first-quarter earnings start coming out in April. That will test whether earnings are holding up as well as analysts are hoping."
Bear shocker
Global markets first went into a tail-spin after as news emerged that Bear Stearns. The 85-year-old investment firm, whose mounting losses linked to bad home loans marked the onset of the credit crisis last summe
r, saw its shares collapse 84% on Monday.
Yet, the market managed to surmount the trauma on Monday, throwing on some fireworks on Tuesday, after the Fed delivered a 75-basis-point cut in its key interest rate. The Dow rallied 420 points, or 3.5%, its best one-day gain since July of 2002.
Along with the Bear Stearns bail-out and a set of extraordinary measures to boost liquidity in convulsing credit markets, the Fed's move on rates -- aimed at boosting the ailing U.S. economy down the road -- seemed to provoke another positive development for stocks.
Dollar firms, commodities plunge
In cutting the Fed funds rate to 2.25%, the central bank refrained from giving the market everything it wanted.
After the Bear Stearns drama, markets were expecting the Fed to cut rates by a full point to 2%. The Fed showing restraint in cutting rates, while also expressing renewed concerns about inflation risks, providing some limit on how many dollars the central bank was ready to flood the system with.
With the dollar back bouncing from record lows and holding firm throughout the week, most dollar-denominated commodities, from crude oil to gold and wheat saw some of their biggest drops in years, after rallying since last August, when the credit crisis began exploding into the open.
"Commodities have had a great run, but the action by the Fed seems to be helping the dollar hold firm. That means we may be seeing the end of the dollar devaluation run in commodities," said Marc Pado, market strategist at Cantor Fitzgerald.
After hitting a record high of $1,034 an ounce Monday, gold's subsequent sharp drop led it to post a 8.3% decline for the shortened week. Crude oil briefly slid below $100 a barrel on Friday, after hitting a record high of $112.75 last Friday, and finished the week at $101.84.
After a week rocked by even wilder swings than those witnessed since the start of the year, stocks recovered to post their first weekly gains in four weeks, even if the week was shortened by the Good Friday holiday.
"There are lots of signs that we were very oversold," said Barry Ritholtz, CEO and director of equity research at Fusion IQ. "In a normal cycle, those periods become great buying opportunities."
In times of crises, "the same metrics don't apply," Ritholtz said. But "it's highly likely that we'll have a bounce over the next few weeks, until first-quarter earnings start coming out in April. That will test whether earnings are holding up as well as analysts are hoping."
Bear shocker
Global markets first went into a tail-spin after as news emerged that Bear Stearns. The 85-year-old investment firm, whose mounting losses linked to bad home loans marked the onset of the credit crisis last summe
r, saw its shares collapse 84% on Monday.
Yet, the market managed to surmount the trauma on Monday, throwing on some fireworks on Tuesday, after the Fed delivered a 75-basis-point cut in its key interest rate. The Dow rallied 420 points, or 3.5%, its best one-day gain since July of 2002.
Along with the Bear Stearns bail-out and a set of extraordinary measures to boost liquidity in convulsing credit markets, the Fed's move on rates -- aimed at boosting the ailing U.S. economy down the road -- seemed to provoke another positive development for stocks.
Dollar firms, commodities plunge
In cutting the Fed funds rate to 2.25%, the central bank refrained from giving the market everything it wanted.
After the Bear Stearns drama, markets were expecting the Fed to cut rates by a full point to 2%. The Fed showing restraint in cutting rates, while also expressing renewed concerns about inflation risks, providing some limit on how many dollars the central bank was ready to flood the system with.
With the dollar back bouncing from record lows and holding firm throughout the week, most dollar-denominated commodities, from crude oil to gold and wheat saw some of their biggest drops in years, after rallying since last August, when the credit crisis began exploding into the open.
"Commodities have had a great run, but the action by the Fed seems to be helping the dollar hold firm. That means we may be seeing the end of the dollar devaluation run in commodities," said Marc Pado, market strategist at Cantor Fitzgerald.
After hitting a record high of $1,034 an ounce Monday, gold's subsequent sharp drop led it to post a 8.3% decline for the shortened week. Crude oil briefly slid below $100 a barrel on Friday, after hitting a record high of $112.75 last Friday, and finished the week at $101.84. 
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