Stocks Threw the Punches – Cut or No Cut

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Dec 12 2007
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FOMC’s announcement at 2:16 ET Tuesday that the Fed decided to cut the rates by 25 basis points to 4.25% didn’t go well with stocks investors. The Dow, Nasdaq and S&P plunged 344, 83 and 46 points, respectively. The sell-off was expected since the investors appetite was for 50 basis points cut to 4.0% to address some of the liquidity strains weighing on the financial markets.

On the bright side, the Fed policy statement did leave open the prospect of further rate cuts. Hopefully the panic selling will subside eventually. Of course I’m still holding some minor positions on Google Inc. (Nasdaq: GOOG, stock), Apple Inc.’s (Nasdaq: AAPL, stock) and Priceline.com Incorporated (Nasdaq: PCLN, stock) Call Options. I think the market over-reacted and tried to show its disappointment with the 25 basis points cut. Bernanke actually has taken the mid-way with the cut from the original plan to leave the interest rate unchanged in December.

However the demand for higher cut somehow overshadowed the generousity of the cut yesterday. Bernanke could do nothing but he chose to dance to the tune of the investors at large. Matching the Fed’s move, the Hong Kong Monetary Authority also cut its base rate by 25 basis points to 5.75 percent Wednesday. The territory’s rates tend to track those in the U.S. because the local currency is pegged to the U.S. dollar.

Japan’s Nikkei 225 index finished down 0.7 percent at 15,932.26, while Hong Kong’s Hang Seng Index was down 2.4 percent at 28,521.06. Australia and Singapore both fell about 1 percent while Malaysia Kuala Lumpur Composite Index was down 10.44 points to close at 1,423.72. Despite the plunge, some lower liners such as Berjaya Corporation Berhad (KLSE: BJCORP, stock-code 3395) and its ICULS registered positive gains. AEON Credit Service (M) Berhad (KLSE: AEONCR, stock-code 5139) which is listing its shares today saw a gain of 33.60% or RM0.84 a share from its IPO stock price of RM2.50. If your application for the AEON Credit’s IPO was successful, Congratulation!

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