Liz Rappaport
The new psychology in the stock market is to position oneself nimbly enough for the potential of a Federal Reserve rate cut. That means not going ultra-short, even though the credit markets remain in lockdown mode and bad news continues to stream in from the mortgage and banking industries.
"Friday you saw people getting slaughtered because they were short or positioned for options expiration, and then the Fed did a pre-market rate cut" of the discount rate, says Randy Diamond, trader at Miller Tabak. "There remains a lot of jitters in the commercial paper and credit markets, but who wants to be short stocks if the Fed might make another move?" Positioning for another relief rally may be right after Monday's layoff news out of Countrywide Financial(CFC Quote - Cramer on CFC - Stock Picks), Capital One(COF Quote - Cramer on COF - Stock Picks) and SunTrust Bank (STI Quote - Cramer on STI - Stock Picks). A rate cut gets more likely as the labor market weakens. High labor costs and a persistently low unemployment rate have been key reasons why the Fed has recoiled from cutting the fed funds rate amid this liquidity crisis. Countrywide started laying off an undisclosed number of its 61,000 employees Monday; its shares fell 7.6% in reaction, as the news reaffirms last week's realization the lender will not be taking share from smaller lenders, as previously speculated. After the closing bell, Capital One said the company is shuttering its mortgage unit, GreenPoint Mortgage, taking an $860 million charge and laying off 1,900 employees. SunTrust Bank announced plans to lay off 2,400 people, or 7% of its workforce. And we haven't started counting layoffs expected on Wall Street in units tied to subprime mortgage and other asset-backed markets.
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