Traders-Blog.com

Stocks ended with gains with expectations of another interest-rate cut by the Federal Reserve helping to bolster financial stocks badly battered in recent months by sub-prime mortgage losses. While the data hasn’t provided a compelling case for another aggressive Fed injection of liquidity, recent ghoulish third-quarter financial sector write-offs appear to have swung market sentiment toward a deeper insurance cut.

The Dow Jones industrial average closed up 63.56 or 0.46% to 13,870.26, the broader S&P 500 closed up 5.70 or 0.37% to 1,540.98, and the tech-fueled Nasdaq composite closed up 13.25 or 0.47% to 2,817.44.

Market breadth was positive. On the New York Stock Exchange, winners beat losers nine to seven on volume of almost 1.22 billion shares. On the Nasdaq, advancers barely edged decliners on volume of 2.05 billion shares.

Investors have continued to bet that the Fed will cut rates again. The market is trading on the anticipation of a quarter-percentage point cut and the increased liquidity it will bring. Traders are betting that policy makers will cut the fed funds rate to 4.50%. Recent economic reports have raised bets that the Federal Reserve will cut rates again, despite the recent spike in oil prices, which increases inflationary pressures. About 59% of the S&P 500 has reported results, and earnings growth is currently on track to have fallen 1% from a year ago.

Shares of Merrill Lynch closed up $1.33 or 2.01% to $67.42, on news that the CEO Stanley O’Neal is expected to announce his resignation from the firm, one week after the company said it lost $8 billion in the third quarter due to bad mortgage bets. The mortgage hit was well above the write down the company estimated it would take earlier this month. During the quarter ended in September, the bank scaled back its CDO exposure by 53% to $15.2 billion and reduced its sub-prime exposure by 35% to $5.7 billion.

Stock of Radio Shack closed up $0.80 or 4.08% to $20.42, after reporting higher quarterly earnings that beat forecasts and said fourth-quarter earnings will grow from a year ago. It reported a net income of $46.3 million, compared with loss of $16.3 million a year earlier. Sales in the quarter ended Sept. 30 fell 9.4% to $960.3 million.

Shares of Gap Inc closed up $0.06 or 0.32% to $18.67, after being forced to disavow a sweatshop in India that employed young children in reportedly miserable working conditions. Gap said it was only informed of the sweatshop earlier this week, and “immediately launched” an investigation.

Stock of Office Depot closed down $2.86 or 14.10% to $17.43, after the retailer said the release of its earnings will be delayed due to possible accounting irregularities found by an independent review.

U.S. light crude oil for December delivery rose $1.67 to settle at $93.53 a barrel on the New York Mercantile Exchange, a record close.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter