The exuberance of the previous day didn't last. Bloomberg reports the stock market action yesterday:
U.S. stocks retreated, erasing half of yesterday's rally, after plunging commodity prices sent oil and mining companies lower and an insurer tried to cancel $3.1 billion in protection on Merrill Lynch & Co. mortgage bonds...
The Standard & Poor's 500 Index, which surged the most in five years yesterday after the Fed cut its benchmark interest rate by 75 basis points, lost 32.32 points, or 2.4 percent, to 1,298.42, its biggest tumble this month. The Dow Jones Industrial Average dropped 293, or 2.4 percent, to 12,099.66. The Nasdaq Composite Index decreased 58.3, or 2.6 percent, to 2,209.96. Nine stocks declined for every two that rose on the New York Stock Exchange.
The reversal extended to commodities as well yesterday. From MarketWatch:
Prices in oil, gold, wheat and other commodities took a dive Wednesday, one day after the Federal Reserve highlighted its inflation concerns as it cut rates and indirectly took away some of the fizz from the recent commodity rally...
Oil futures lost 4.5% to end at $104.48 a barrel on the New York Mercantile Exchange, its biggest daily loss since 1991. See more on oil.
Gold for April delivery, which hit a record high of $1,034 an ounce Monday, plunged $59, or 5.9%, to finish at $945.30 an ounce, its biggest one-day drop since June 2006. Read Metal Futures.
Wheat futures lost 7.7% to end at $10.74 a bushel.
The flight to safety pushed Treasuries up. Bloomberg reports:
Treasuries rose and three-month bill rates plunged to the lowest level in almost 50 years on speculation credit market losses will widen, prompting investors to seek the relative safety of government debt...
The rate on the three-month bill, viewed by investors as a haven in times of trouble, dropped 32 basis points, or 0.32 percentage point, to 0.56 percent at 5:30 p.m. in New York, according to bond broker Cantor Fitzgerald LP. It's the lowest level since May 1958.
The yield on the 10-year note fell 16 basis points to 3.34 percent, after rising the most in four years yesterday. The price of the 3 1/2 percent security due in February 2018 rose 1 11/32, or $13.44 per $1,000 face amount, to 101 10/32. The two- year note's yield dropped 16 basis points to 1.47 percent...
The three-month London interbank offered rate, or Libor, for dollars rose for the first time in three weeks, indicating the Fed is struggling to instill confidence in money markets. The difference between what the government and companies pay for three-months loans, known as the TED spread, increased 32 basis points to 1.98 percentage points, the biggest gain since Jan. 22, when the Fed made an emergency cut in borrowing costs.
And the yen carry trade unwinded further. Again from Bloomberg:
The yen rose for a second day against the euro on speculation investors will reduce holdings of commodities financed with loans from Japan...
Japan's currency climbed to 154.28 per euro as of 10:26 a.m. in Tokyo from 154.80 in New York, bringing its gains this year to 5.7 percent. The yen advanced to 98.93 per dollar from 99.03...
The yen advanced the most against the South African rand, rising 0.5 percent to 12.1823 yen. It climbed to 90.30 yen per Australia's currency from 90.53 yesterday in New York...
But while investors fled to safety yesterday, some are thinking that we could be ready for a bear market rally in stocks. At least John Authers thinks so.
It has been a terrible week. Can the stock market now indulge in a brief bear market rally?
Wednesday’s Merrill Lynch survey of fund managers made clear that the preconditions are in place.
More global fund managers are overweight in cash, compared to their benchmarks, than at any time since the survey started in 1998. Fund managers also believe that equities are undervalued by the biggest margin since the bear market bottomed in 2003, and that bonds are overvalued.
And Mark Hulbert points to a possible technical signal for a rally.
... [A] "Double Nine-to-One" signal...got triggered on Tuesday: March 11, one week ago, was a Nine-to-One Up Day, and so was Tuesday, when up volume constituted more than 95% of the combined volume of both rising and falling stocks.
How bullish is a "Double Nine-to-One" signal? One answer is provided by David Aronson, an adjunct professor of finance at Baruch College...
"... [I]n the 60-trading-day period following a ... double Nine-to-One signal...the S&P 500 index produced an average annualized return of over 22%...
"In the non-signal periods," Aronson continued, "in contrast, the return averaged 4.5% annualized. The difference between these two average returns is statistically significant."
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