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Closing Bell: 11.1.07

Sponsored by the Financial Times.
Trick or treat? The great Pumpkin came and went, and all the markets got was a push back to the lowest levels in over a week, and the biggest one day decline since October 19, the anniversary of Black Monday.
Stocks opened sharply lower. The major indexes started off the day at or close to the lowest point they reached yesterday before the announcement of the rate cut by the Federal Reserve. In fact, the duration rate cut’s boost to the stock market may be the shortest ever, and a sign that investors are finally taking seriously the perplexing array of threats to corporate prosperity and the broader economy.
And what started out ugly, stayed that way for most of the day. Volume started out heavy, and declined rapidly midday. Many investors seemed willing to sit this day out. But volume and downward velocity returned in the final hour of trading, pushing the indexes further down by half a percentage point to a full point. The Dow Jones Industrial average was down 3.62.14 by the end of the day, a loss of 2.6%. It closed at 13567.87. The Nasdaq Composite didn’t fare much better, dropping 64.29, or 2.25%, to 2794.83. The S&P got the worst of it, losing 40.94 points, or 2.64 percent, for a close at 1508.44. It was a bloodbath for the financials, which been moving upward this week. The Broker-Dealer index lost 4.88%.
There will be lots of talk about what changed between the final hours of trading yesterday and this morning. Our explanation remains: the aggregate buying and selling activity of investors, motivated by heterodox and often unarticulated strategies, produced the results. But folks who like a more narrative approach will likely blame the CIBC credit analysts note on Citigroup, Exxon-Mobile’s earning’s report and the Federal Reserve’s actions and statements.
Indeed, a lot of the talk today has been about the Federal Reserve. Some investors have reacted negatively to the news of the rate cut and language of further problems in the housing market. If the Fed thinks things are bad, maybe we should listen, they whisper while they punch in their sell orders. Others are more disappointed by the impression the Fed gave that this was the last rate cut the market was going to see for quiet awhile. Last call at the punch bowl, fellas.
The increasingly doubtful prospects of the Entity have also produced worries. If the US Treasury, JP Morgan, Citi and Bank of America can’t make the Entity work, maybe the market for the mortgage-backed credit instruments they wanted to sell into it is even worse than anyone imagines. Focus finally—belatedly—seems to have turned to the ABX bond index, which keeps falling. And there are whispers everywhere that some of the big Wall Street firms—especially, Merrill Lynch—may have actually underestimated their losses from the credit crunch.
FT Alphaville will drop you to the *$%#$# floor.