"Will rate cuts serve as a panacea to the price action? We've discussed how the past, while not an absolute prologue to the future, often offers valuable reminders, such as how the market reacted after the first rate cute in January 2001 (Chart below) I believe that's an important context to keep in mind after the initial, requisite rally."
According to this chart, I see that after the last "first initial rate cut" we got a nice spike up and then a monstrous downtrend, will this happen again? Will a rate cut hurt us in the long run? Give me your opinions.
6 comments:
The market environment was completely different. Comparing that rate cut to now is like apples to oranges. If you want to compare charts, look at 1998 compared to 2007. That was supposed to be the big scare chart comparison.. Thing is, history doesn't have to be repeated. Second, again, this market is totally different now. Third, most analysts can't comprehend where we will honestly go. If all the little guys are affraid, which they are, we will see a dive and a correction over a few months. Probably the same people with dead mortgages and huge credit card bills will be selling off in fear this next month. (The Dumb Money.)
Thanks for the comment, I did not get into the market until 2002. I have never experience a "first initial rate cut" first hand. But, from what I have read, this is a totally different market, and think the market will act positive to a rate cut. We shall see.
Now run the same chart for the first rate cut and the homebuilder index. I am not calling for a bottom or buy here but I have taken a small position ahead of the announcement.
Since 1955 there have been 11 time periods where the Fed has cut rates after raising them over a period of time. The S&P has risen an average of 23.9% over the following 6 months. The valuations in 2001 were still vey high which explains the stock drop over the next year or so.http://www.hussman.net/rsi/fedfundscut.htm
Who know how they will react immediately after Tues. meeting. Too much, too little? Just give it a little time to settle out and don't try to be a hero.
Thanks for the comments guys.
Although I don't like the guy, Cramer during his Friday evening show laid out 3 different scenarios for what might happen following the cut.
My money is on down, at least for a short period of time ~1-2 days.
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