Stocks Finish Sharply Lower on Profit-taking and Fed Disappointment

Indices
S&P 500 1,477.65 -2.53%
DJIA 13,432.77 -2.14%
NASDAQ 2,652.35 -2.45%
Russell 2000 766.27 -3.15%
Wilshire 5000 14,854.93 -2.55%
Russell 1000 Growth 614.62 -2.39%
Russell 1000 Value 803.64 -2.74%
Morgan Stanley Consumer 750.59 -1.60%
Morgan Stanley Cyclical 996.42 -3.24%
Morgan Stanley Technology 627.35 -1.68%
Transports 4,734.75 -3.39%
Utilities 539.83 -2.34%
MSCI Emerging Markets 157.04 -1.54%

Sentiment/Internals
Total Put/Call 1.10 +14.58%
NYSE Arms 2.68 +302.96%
Volatility(VIX) 23.59 +13.74%
ISE Sentiment 146.0 +21.67%

Futures Spot Prices
Crude Oil $89.26 +1.60%
Reformulated Gasoline 227.65 +1.17%
Natural Gas 7.12 +1.29%
Heating Oil 251.02 +1.32%
Gold 802.90 -1.30%
Base Metals 213.53 -.55%
Copper 303.65 -1.83%

Economy
10-year US Treasury Yield 3.97% -19 basis points
US Dollar 76.30 +.31%
CRB Index 346.83 +.98%

Leading Sectors
Telecom +1.16%
Restaurants -.23%
Internet -1.38%

Lagging Sectors
Banks -5.22%
REITs -5.70%
Homebuilders -6.81%

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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Gold fell $8/oz. after the Fed lowered interest rates by less than some traders had expected, rallying the dollar and eroding the appeal of the precious metal as an alternative investment.
- MBIA Inc.(MBI), “meaningfully” improved its finances by raising $1 billion in capital, Moody’s Investors Service said.
- Citigroup Inc.(C) named former Morgan Stanley(MS) President Vikram Pandit as CEO, ending a monthlong search after Charles O. Prince stepped down amid at least $9 billion of mortgage losses.
- The Federal Reserve lowered its benchmark interest rate by a quarter-point to 4.25%, while signaling officials are open to further cuts if the housing slump and credit squeeze worsen.
- General Electric(GE), providing a forecast that trailed analyst estimates, said profit will rise at least 10% next year as growth slows at the consumer finance and health-care divisions.
- US Treasuries rose the most in more than three years after the Fed’s quarter-point reductions in interest rates.

Houston Chronicle:
- A newspaper critical of President Hugo Chavez’s government said Tuesday it is being forced to stop printing because officials have failed to authorize US dollars it needs to buy newsprint.

Economist.com:
- Darker days for new listings on China’s stockmarkets.

BOTTOM LINE: The Portfolio finished lower today on losses in my Biotech longs, Software longs, Retail longs, Computer longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was very bearish. However, the 10-year TIPS spread, a gauge of inflation expectations, fell to 2.25% after the Fed announcement, which is a positive. It is now at its lowest level since July 2005 before the historic hurricanes hit the Gulf. As well, the US dollar-based 3-month LIBOR rate fell another 2 basis points today and is down 61 basis points from September highs. I suspect, given the disappointment with the Fed, we could see some further weakness in stocks near-term. The most cyclical and credit-sensitive securities will likely remain under the most pressure. Market leading “growth” stocks should bottom over the next couple of days and resume their strong year-end rallies. Nikkei futures are indicating a down 429 open in Japan tonight.