May 1, 2008
Contrary to Wednesdays rather small declines, the day the Fed cut the fed funds rate, the indices soared today. The NASDAQ was the star performer, closing up 2.82 percent, while the S&P500 increased 1.71 percent, and the DJIA coming in last, nevertheless, gained 1.48percent.
As noted yesterday, the indices have a 50/50 performance on announcement day. However, when the index response, in the past, was negative when the Fed cut the fed funds rate, on the following day -for example, as Thursday was the day following the latest rate cut- the duplicated their 50% increases and 50% decreases response ratio, but in the opposite direction.
Typically, when the index declined on announcement day, it gained on the day following the Feds declaration. And that is what happened this week.
Looking at the past, a similar pattern of alternating up and down closes is evident for the second day following a fed fund rate cut. That is, relating this sequence to tomorrow, these indices could reverse again, moving down instead of up.
DJIA 1.48 percent
NASDAQ 2.82 percent
S&P500 1.71 percent