What a Week: Mood Swings

The stock market handled the evolution in interest rates with a sloppy decline Thursday, just one day after the Dow Jones Industrial Average reached a new all-time high. All three indices finished the week down 0.6%. The Dow ended at 12,487.02, while the S&P 500 finished at 1422.18. The Nasdaq Composite finished the week at 2435.49.

Stock investors were coping not only with the Treasury bond market selloff, but with a strong rebound in commodities prices. Likewise, the market watched credit spreads (risk premiums on high-yield bonds) reach near-record lows, reflecting ample liquidity in the financial system -- another reason the Fed is unlikely to cut rates.

"The global economy is booming," writes Michael Darda, chief economist at MKM Partners, long a believer that the Fed would not cut rates.

The fed funds futures market wiped the rate cut off the table this week, according to Miller Tabak. Odds of a rate hike or cut at next week's meeting are nil, while odds have swung to a 1% chance for a hike in March and 2% odds of a hike in May.

The week began with traders frenetically moving in and out of commodities-related and technology stocks. The price of oil jumped sharply on Tuesday ahead of President Bush's State of the Union address. The administration said it would begin buying 100,000 barrels of oil a day to replenish the strategic petroleum reserve that was depleted after hurricanes Rita and Katrina. The president also said the government would double the size of the SPR to 1.5 billion barrels.