October 29, 2008
At an unscheduled meeting, the Fed cut its funds rate 50 basis points. But after a short surge, stock prices fell. While the NASDAQ closed higher by .47 percent, the DJIA sank -.82 percent and the S&P500 by -1.11 percent.
This reaction was unexpected, since prices increased in five of the last seven rate cuts in the series that started in September of last year. One has to wonder at the Feds motivation to add this initiative on the day after index prices climbed to a near record high. Did it expect the rate cut would increase prices further, and thus help the market move out of the slump that started in early September?
There have been 18 fed fund rate cuts since 1995. The NASDAQ has a record of moving higher on the following day; and it did so 12 times. The DJIA and the S&P500, however, have not responded as one sided, rising just half of the time, and falling on the other nine times.
DJIA -.82 percent
NASDAQ .47 percent
S&P500 -1.11 percent