By John Derrick
Director of Research
U.S. Global Investors, Inc.

Despite having been cut short by a Friday holiday, this trading week was particularly action-packed. Wall Street witnessed the downfall of an 85-year-old investment bank, as well as the largest initial public offering in U.S. history. The ups and downs of the market were equally breathtaking.

Investors will have a long weekend to catch their collective breath and prepare for the week ahead. But before we move forward, let’s take stock of the week just ended.

The tumult began before the markets opened for the week. On Sunday, JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $236 million, or $2 a share—less than one-tenth of Bear Stearns’ market value at the close of the prior week. Bear Stearns had unraveled rapidly that week as its liquidity evaporated. The sale was expedited due to fears that, if it were not completed before Asian markets opened on Monday, financial panic would spread.

The Fed, which engineered the bailout, agreed to fund up to $30 billion of Bear Stearns’ less-liquid assets.

While there was considerable anxiety, the S&P 500 closed down by less than a percentage point Monday. The Dow Jones Industrial Average finished slightly up, mostly due to Dow component J.P. Morgan, which rose on the Bear Stearns’ takeover news.

But benchmark indices saw a large rally on Tuesday. They began climbing on news of higher-than-expected profits at Goldman Sachs and Lehman Brothers and continued their ascent after the Fed slashed the federal funds rate by three-quarters of a percentage point.

Investors had expected a full percentage point cut. But the Dow still shot up 3.51 percent on Tuesday, and the S&P 500 gained 4.24 percent—its biggest percentage gain since October 2002.

Wednesday was particularly eventful. Shares of Visa Inc. made their stock market debut after the credit card company’s IPO. They were priced above expectations at $44 per share and soared 28 percent in their first day.

Also that day, a federal regulator eased a major restriction on Fannie Mae and Freddie Mac, reducing the extra cushion of capital that the nation’s two largest mortgage finance companies are required to hold. The move will enable Fannie and Freddie to invest an additional $200 billion in home loans.

A number of dollar-denominated commodities—including gold and oil—plummeted Wednesday and continued to fall on Thursday. Investors had flocked to commodities as the dollar weakened, but recent Fed actions seem to have stabilized the dollar. Some analysts also said the commodities’ sell-off may be fueled by hedge funds liquidating positions to meet margin calls.

Long before commodities’ slide this week, we had highlighted that both gold and the dollar were extended and due for a reversal. We believe that what happened Wednesday and Thursday with gold and oil was a normal and healthy correction, of the sort that takes place during long-term bull markets.

In times like these, short-term fear can lead to less-than-optimal asset allocation decisions. In the past, we have recommended that investors systematically review their portfolios on an annual basis, a strategy that makes it easier to remain calm and confident amid volatile markets while advancing toward your financial goals.