Friday's sell-off upon rumours of a derivatives hit at Bank of America or the potential bankruptcy of California's two largest utility companies only reinforces the need for the Fed to move swiftly to inject liquidity into a financial system, even though there is no danger at all of a 1998 style systemic financial crisis as happened in the aftermath of the Russian debt default and the LTCM hedge fund disaster. The jobs report on Friday only reinforces the economic weakness and lays to rest the phantom fear of wage inflation that had strangely gripped chairman Greenspan's mind in 199-2000. It is tough to be an inflation hawk amid plant shutdowns, plunging consumer confidences trillion dollar equity hits on Wall Street, weak retail sales. That is the reason the Chicago implied Eurodollar future contract suggests a Fed funds rate below 5 per cent by June. I would suggest that we are in the bottoming out stages of the tech cycle and the broad SP500 is dramatically undervalued given the drop in interest rates.
Technology is still at a crossroads.
With Ariba, Montonola and Nokia reporting next week any predications for next week are foolhardy. Historically, technology has outperformed the overall market after every Fed rate cut. This is not to argue that profit fundamentals do not matter. They obviously do yet the market's major sectors are technically very oversold. Like Yahoo, a lot depends on how management gives guidance for 2001.