Stocks Rise as Rates Fall

10/30/2008 10:46 am EST

Focus: GLOBAL

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

What a week! Just when all hope seemed lost, the Dow Jones Industrial Average racked up its second best day ever, with an 889-point jump on Tuesday! Led by the overseas markets the night before, hope turned into reality as investors began scooping up bargains.

On the heels of a rate cut in China, and in anticipation of a move lower by the Federal Reserve Wednesday (it cut both the federal funds rate and the discount rate by ½ point) and potential cuts by the Bank of England and the European Central Bank later in the week, the joy lasted through Wednesday night. The FTSE 100 gained more than 8% on Wednesday, and Japan’s Nikkei soared last night, closing up 10.0%, with commodities and exporters being the prime beneficiaries.

Good news all around—but wait! I wouldn’t be taking all that money out of the mattress to put it back into the markets just yet. One day does not make a bull market. And following the Fed’s expected move, US markets gave back some of the ground they had gained Tuesday.

The economic crisis is far from over. And although the market usually anticipates a recession—and we emerge from one—before economists officially certify it, we are still not out of the woods.

Earnings will continue to be a drag on the market’s fortunes for awhile. Economic activity throughout the developed world is dropping quickly. The financial crisis is not really abating much, and countries worldwide are feeling the pinch. Global governments have pledged some $4 trillion to bail out banks and markets.

The International Monetary Fund (IMF) has offered $16.5 billion to the Ukraine and $2.1 billion to Iceland, while Hungary has just been granted a $25.1-billion rescue package by global lenders. But the IMF warned that it may need an injection of more funds if many more countries request aid.

Gasoline in my town is now $2.19 a gallon, thanks to continuing oil declines (now around $68 a barrel). At an emergency meeting last week, the Organization of Petroleum Exporting Countries agreed to cut production by 1.5 million barrels per day to prop up prices. And OPEC may cut production again before their next regularly scheduled meeting in December. Oil popped a little bit in response to surging stock markets, but we hope we can maintain more reasonable prices for a while.

While the improved market certainly gives us hope, many of the advisers featured in Global Investing this week continue to urge caution.

In our Global Q&A this week, Pratik Sharma, principal at Atyant Capital Partners, in Berkeley, California, paints a promising picture for India’s future.

And Eoin Treacy, global strategist at FullerMoney.com, updates his outlook for all the BRIC countries (Brazil, Russia, India, and China), explaining the importance of looking at them individually rather than as a group.

Gordon Pape, editor of The Canada Report, champions a beaten-down Canadian energy company, while Nick Lanyi, editor of High-Yield International, is cautiously buying large utilities in the UK and China.

If the markets hold most of their gains for a couple of weeks, we may want to start tiptoeing back in to stocks. But I’m just not there yet. Meanwhile, here’s hoping for a less stomach-churning week around the world!

Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.

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