Daily Market Assessment

Just What We Were Waiting For!

It was like Groundhog Day in more ways than one. Like the Bill Murray movie, the Fed did the same thing that it has done time and time again, nothing. Like the holiday, people eagerly awaited the announcement and then reacted. In yesterday's case, the reaction was positive. The Fed decided to leave rates unchanged (more on that later), and the reaction was quick and decisive. The Dow Jones Industrial Average (DJIA - 12,447.5) was hovering near breakeven for the first part of the day and then quickly rocketed higher. At day's end, the Dow finished the day with a 159-point gain. The only Dow component that finished the day in negative territory was Alcoa (AA), which was subject to a downgrade (check out our blogfor more details). The rest of the blue-chip barometer was led higher by American Express (AXP), Citigroup (C), Caterpillar (CAT), J.P. Morgan (JPM), and Exxon Mobil (XOM) were all significantly higher. The S&P 500 Index (SPX - 1,435.04) finished the day more than one percent higher, bouncing off its 20-day moving average and putting the 1,400 level well in its rear view mirror. The Nasdaq Composite (COMP - 2,455.9) finished the day nearly two percent higher, surging after the Fed's announcement.

It's apparent now that the Fed expects to begin cutting interest rates sometime later this year, perhaps as early as this summer. The market knows that 5.25% is too high to sustain our weakening economy, and we also know that virtually all of the inflation signals have been overblown. Assuming we don't have a rapid run-up in oil prices again, a quarter-point rate cut looks good before September. And the market will love it!

Summary: Short Term Neutral; Long Term Bullish