Stocks End Mixed After Bear Scare

The Fed's policymaking arm, the Federal Open Market Committee, will meet Tuesday, and futures are pricing in a 100% chance that it will cut the fed funds target rate by a full point, nearly doubling from Friday's odds. The FOMC has already slashed the rate by 225 basis points since September in an effort to soften the market's fall as the credit crunch has intensified.

For his part, Yamarone predicts the gathering will only result in a half-point cut. "I just don't think the Fed can afford to cut its fed funds rate by 100 basis points with inflationary pressures mounting and the dollar in a freefall," he said. "Because at that point, it becomes a potential collapse."

Richard Bove, an analyst with Punk Ziegel, said on CNBC that the market is "getting to the crescendo of this financial crisis." He believes we will find out in the next four or five days whether the moves being taken by the Fed will hold the financial system in place, and expects that they will do so.

Raha agreed. "Based on the way the Fed has acted, and the liquidity with which it has responded, I do believe that the situation is likely to get better, and not worse."

Meanwhile, shares of Bear Stearns rival Lehman Brothers (LEH Quote) had an erratic session in the red, at one point sliding 48% to a 52-week low of $20.25, amid questions regarding its liquidity. Lehman itself called its cash position "very strong," according to reports. The stock ended down 19.1% at $31.75.

The downturn came after Moody's affirmed its A1 rating on Lehman's senior long-term debt, but lowered its outlook to stable from positive. At the same time, UBS downgraded Lehman to neutral from buy.

Nevertheless, Pride believes that Lehman will likely be saved from following Bear's path, thanks to the Fed's decision to allow investment banks to borrow at the discount window.

"And if it had been there before, it may have saved Bear, as well," he added.

The Amex Securities Broker-Dealer Index plunged more than 10% under the weight of Bear and Lehman, and the NYSE Financial Index gave back 2.1%.

Among individual names, Morgan Stanley (MS Quote) was down 8%, and Goldman Sachs (GS Quote) lost 3.7%. Merrill Lynch (MER Quote) slumped 5.4%, and Citigroup (C Quote) fell 5.9%.

Elsewhere in the space, ETFs-and-options broker MF Global (MF Quote) sank as much as 79% to $3.64 -- by far the stock's lowest point since its July 2007 initial public offering -- on rumors of customers pulling out funds and of ties to billionaire investor Joe Lewis, who was speculated to have lost big in the Bear Stearns collapse.

The blood-letting tapered off after the company declared that it has no exposure to subprime mortgages, and is "very well capitalized with $1.4 billion in a committed, undrawn credit facility." The firm also said Lewis is not one of its clients. Still, shares finished down 65.1% at $6.05.

In a speech Monday morning, President Bush acknowledged that times are "challenging," but said "our financial institutions are strong." He voiced support for the Fed's actions and said that the central bank will "continue to act decisively in a way that brings order to the financial markets."