Market finally received a Christmas gift although it is a little late than usual. Most senior traders are going to take days off starting from tomorrow, so the market is expected to trade very light for the remaining of 2007.

Oracle’s upbeat earning news did give a boost to big cap tech stocks while financial stocks were struggling to find a bottom. Most economic news today was negative: a). Initial claims rose more than expected to 346K. More important, the four-week moving average of claims rose to 2.63 million, the highest level in almost two years, indicating continuing worsening job market. b). The Leading Indicator came at -0.4%, following the previous month’s -0.5%. c). The Philadelphia Fed Index came at -5.7, the first negative reading for this index in 2007. d). The total amount of commercial paper (CP) outstanding fell by $54.7 billion, the largest weekly decline since last August. Investors cannot find much comfort in today’s earning news either: Bear Stearns followed Morgan’s dismal earning report yesterday and posted a bigger than expected loss while FedEX issued a profit warning for the next quarter. So it is quite remarkable that the market can hold onto itself.
As if seven years are not long enough, today’s Wall Street has so many things in common compared to the Silicon Valley back in 2000. Back then, many big tech names dropped 50% or even more in a single year and today I would like to take a look at how some of the Wall Street firms have fared so far this year: a). Commercial banks – Citi(high of the year: $57, now: $29.89); Washington Mutual (high: $46.38, now: $14.67) b). Brokerages – Morgan Stanley(high: $77.31, now: $51.37); Merrill Lynch(high: $98.68, now: $54.50); Bear Stearns(high: $172.61, now: $91.42) c). The so-called crown companies – Freddie Mac (high: $69.25, now: $31.48); Fannie Mae (high: $70.57, now $35.65); Sallie Mae (high: $58, now: $20.72) d). Bond insurers – MBIA (high: $76.02, now: $19.95); Security Capital (high: $34.58, now: $4.00); ACA Capital (high: $16.55, now: $0.80)... The list can go on and on.

The market closed the day relatively flat, which may not be bad at all given that there is little good news to cheer about. Morgan Stanley disappointed on the earning’s front due to further write downs in its mortgage-related debts. But the stock closed the day up by more than 4% due to a $5 Billion capital injection from China Investment Corp (CIC). The CIC’s acquisition became the latest of several recent deals aiming to inject capital into the troubled US financial sector (others include China’s CITIC Securities $1 billion in Bear Stearns, Abu Dhabi state investment fund $7.5 Billion in Citigroup, and Singapore Investment Corp CHF 11 Billion in UBS). It shows that some (maybe smart) investors have started to see values in those abandoned financial firms. Fed also announced the results for its first special auction: total amount of bids came in at $61.5 Billions, roughly equal to 3 times of the auction amount, indicating banks are not as desperate for funds as some had feared. Treasury bonds rallied sharply today as more money chose to move out of equities. US dollar continued to its recent uptrend and closed higher while oil price also closed higher due to higher-than-expected inventory withdraw. After the bell, Oracle’s earning results beat the expectation by a relatively big margin so tomorrow bulls at least have some good news to chew on.

The market finally had a rebound after two straight down days. However, bulls didn’t have much to cheer about because for all three major indices, they closed below where they opened. The market opened in a positive tone following the overnight news that ECB injected 500 billion liquidity into its banking system. Most other news this morning was neutral to slightly positive. Earnings from Goldman and Best Buy handily beat expectation. Housing starts and building permits data also came pretty much in line with expectation. However, uncertainties about Q4 earnings and the general economic outlook for 2008 quickly erased early gains and at one point, Dow was down by more than 70 points. Then at around 1:30pm, it appeared that some program buying activities were kicked in and turned the market back into positive territory (some attributed the trigger to a program buy activity in General Motors but I don’t put too much credit to such a rumor). With only seven and a half days left for 2007, chances are we are going to see more this kind of confusing market behavior due to continuing window dressing. One final note, according to the fund flow research firm TrimTab, investors pulled out more than 50 Billion out of US equities while pouring around 130 Billion into international markets in 2007. Since the general public is usually a good contrarian indicator, there is a good chance that next year may not end as bad as some investors have feared.

The market resumed its free fall after the weekend despite the relative strong performance of the key financial sector. Most emerging markets were faring even worse as evidenced by more than 4% haircut in MSCI Emerging Markets Index. We got mixed economic news this morning. The NY Empire State Index dropped to 10.3 vs. 21.0 expected by the market. Current Account for Q3, on the other hand, came in better than expected and this shouldn’t be that surprising given the weak performance in US dollar during the past quarter. But the Net Foreign Purchases number did provide some surprise to market participants as not only did the inflow of $114 Billion easily surpass the market expectation, the number for the previous month was also revised up by more than $40 Billion. This greatly alleviated fears about potential lack of interests in US assets from overseas investors.
The US dollar is mixed against major currencies, but only on a marginal basis. The US dollar index is now standing above 77 after bottoming out at around 74 three weeks ago. Treasury bonds rallied a little following weakness in equities. Commodities, as a whole, didn’t move much either. But on an individual basis, we saw continuing weakness in base metals, which reflects uncertainty regarding global economy in 2008. Admittedly, it is indeed a tough environment for investors to make money these days. By the closing of last week, the S&P Midcap 400 Index just had a bearish cross (50 ma went below 200 ma) following Russell 2000 on a weekly closing basis. And if the market just stays at this level for one more week, S&P 500 will join them as well. But it is also important to remember that investing is not a straight line: it has ups and downs like ocean waves and it is just as simple as that.