U.S. stocks next week will turn to the Federal Reserve, hoping it will deliver hefty cuts in interest rates after concerns about the possible collapse of investment firm Bear Stearns on Friday dashed investors' hopes that the end of the credit crisis gripping global markets was in sight.
"After Bear Stearns, they'll likely cut by more than was previously thought to show the market that they stand ready to provide as much liquidity as needed," said Paul Nolte, director of investments at Hinsdale Associates.
Bear Stearns Cos. Inc. jolted markets Friday, saying that liquidity, or the company's ability to fund its businesses, had "deteriorated significantly" in 24 hours. The 85-year-old investment firm, deserted by its clients and counterparties, was forced to accept an extraordinary bailout package from the Federal Reserve and banking giant J.P. Morgan Chase. The move failed to reassure investors, who saw it as yet another sign of how serious the credit crisis that started with bad home loans last summer has become.
"The problem is, it's moved from a credit crisis to a crisis of confidence," Nolte said. "As difficult as it is to correct a credit crisis, it's even tougher to address a crisis of confidence."
Shares of Bear Stearns plunged 47% on Friday, taking its financial peers down along with it, as well as the broader market.
Investors can expect more news from the ailing financial sector next week, with Bear Stearns posting quarterly results Monday after the close, followed by fellow investment firms Goldman Sachs.
After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2% from the current 3%.
All the worries about financial institutions and credit markets, meanwhile, are being compounded by the belief of many investors, analysts and economists that the U.S. economy is headed toward, or has already entered into, a recession.
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"After Bear Stearns, they'll likely cut by more than was previously thought to show the market that they stand ready to provide as much liquidity as needed," said Paul Nolte, director of investments at Hinsdale Associates.
Bear Stearns Cos. Inc. jolted markets Friday, saying that liquidity, or the company's ability to fund its businesses, had "deteriorated significantly" in 24 hours. The 85-year-old investment firm, deserted by its clients and counterparties, was forced to accept an extraordinary bailout package from the Federal Reserve and banking giant J.P. Morgan Chase. The move failed to reassure investors, who saw it as yet another sign of how serious the credit crisis that started with bad home loans last summer has become.
"The problem is, it's moved from a credit crisis to a crisis of confidence," Nolte said. "As difficult as it is to correct a credit crisis, it's even tougher to address a crisis of confidence."
Shares of Bear Stearns plunged 47% on Friday, taking its financial peers down along with it, as well as the broader market.
Investors can expect more news from the ailing financial sector next week, with Bear Stearns posting quarterly results Monday after the close, followed by fellow investment firms Goldman Sachs.
After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2% from the current 3%.
All the worries about financial institutions and credit markets, meanwhile, are being compounded by the belief of many investors, analysts and economists that the U.S. economy is headed toward, or has already entered into, a recession.
Story contributed by MarketWatch: Read More
