A bumpy ride...

There has been a lot of new news in the past 24 hours, and the markets are responding with a lot of volatility! (see the 2-day chart of the S&P index to the left). Let's see if we can break this down...

At 2:15pm yesterday, the Fed cut rates 25 basis points to 4.5% in order to protect the economy from collapsing housing markets. The bulls applauded this move: By 3:00pm, The S&P had risen nearly 2% on the news, and closed out the day up about 1%.

But while the markets cheered the rate cuts, Thursday began with bad news: Citigroup's (C) stock was downgraded over credit-market concerns (analysts think that they will have to cut their dividend or sell assets to pay for risky bets that are turning against them), and Exxon Mobil (XOM)reported a "greater than expected" 10% reduction in third-quarter earnings. Crude oil hit an all time record at $96 per barrel today and has really outpaced gasoline prices over the past quarter, which seems to have dampened XOM's 3rd quarter profits.

Major indices opened down ~1.8% on Thursday, sharply reversing Wednesday's gains on the rate cuts.

The bad news about Citigroup and Exxon affected the entire market because both companies are the largest in their respective industries, and because their problems are symptomatic of underlying issues currently facing financial markets and the economy. Much uncertainty remains over the future of Citigroup's SIVs in the face of the credit crunch (see the post on the "SMLEC" below), and nobody is really sure what type of effects $100 oil may have on the US economy.

Click here for a good summary of all of the action over the past 24 hours.