Thursday, September 20, 2007 0 comments ++[ CLICK TO COMMENT ]++

Market Performance After Federal Reserve Rate Cut

Businessweek has an article looking at performance of S&P 500 components after the first rate cut. You can read the full article here.

(source: The Fed's Move: Cause for Joy—or Worry? by Ben Steverman, BusinessWeek. URL referenced above)

As is the case with most stock market analysis of inflection points, statistically the sample size is way too small to draw any meaningful conclusion. Nevertheless, we find that the market has gone up on average after 6 months after the first rate cut. However, in the last 20 years, the market actually declined in 1982, 1991, and 2001--these were recessions as you will recall. So the way I look at it, the market will likely decline if there is a recession. In other words, the most important thing now is, not what the Federal Reserve does next, but whether we have a recession on our hands or not.

(On an unrelated note, the long bonds sold off very sharply today. This is one of the few instances where the bonds sold off big time while the broad markets also declined. The sell-off is likely due to US$ decline but bonds have been doing terribly in the last few days.)

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