US Markets are Looking Toward FED Rate Cut

UBS reveals $10 billion write-down

Banking giant gets $11.5 billion injection from Singapore, Middle East after writing down $10 billion more in U.S. subprime.

Below are the market opening comments by A.G. Edwards market analyst Alfred Goldman.

"The employment news on Friday was manna from heaven for investors if not so great for the economy. The creation of 94,000 new jobs and an unemployment rate of 4.7% were not too hot, not too cold, just right. If unemployment had been up big, investors would have worried that perhaps the Fed would not cut rates Tuesday. If employment had been down big, fear of a recession would have been magnified. The initial response by the stock market was pretty mild and then some selling pressure came in which lasted several hours. But, the bull was not to be denied and the buyers came back late in the session and pushed up the popular averages and the A/D to flat. Overall, good action after two strong sessions and coming on a Friday.

"Oil dropped sharply which helped the Transports (4874.20,TRAN) along with an improved mood about the economy in 2008. However, it is confusion about recession or no next year, which will probably keep the market in its now five-month-old trading range for the S&P 500 from 1400 to 1560. It could take a number of months - perhaps into the spring - before confidence of no recession is strong enough to break the market out on the upside. If a recession takes control of investors' mood, the breakout would be on the downside. Meanwhile, a trading range market can provide good opportunities for traders.

"Looking ahead to the FOMC news release tomorrow at 2:15 ET, we see two probable scenarios. If the Fed doesn't cut, watch out below. If the Fed cuts 25 bp, which is widely anticipated and probably fully discounted, we would expect an immediate but moderate and normal correction for a couple of days. If the cut is 50 bp, we expect a continued rally for another day and then a normal and moderate pullback. This pullback would set us up for the classic Santa Claus rally - the last five days of the year and first two of the New Year. Since 1969, the S&P 500 has averaged a 1.7% gain during these seven days and the index rallied 29 times and declined only 9 times.

Today - foreign markets were up. Stocks try the upside but probably nothing exciting."