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Don't Bank On That Rally
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Thursday, 20 September 2007
On January 3, 2001, Alan Greenspan surprised the market by cutting 50 basis points from the Fed's short-term interest rate...
Like today, stocks were close to all-time highs – the blue chips anyway – people were starting to worry about recession, and the Fed had held interest rates on a high plateau (6.5%) for the preceding seven months.

When the news hit the market, investors celebrated with a 300-point rally in the Dow.

Yesterday, Ben Bernanke surprised the market with his own 50-basis point rate cut, and investors celebrated with another 300-point rally in the Dow.

This could be the start of a new rate-cutting campaign from the Fed. But don't assume stocks have to rise if the Fed does keep cutting rates...
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After his 50-basis point cut in January 2001, Greenspan continued cutting rates for the next two years, moving them from 6.5% to 1%...
Three days after Greenspan's surprise rate cut, the Dow was already trading below its pre-rate cut level... and 19 months later, the Dow had lost 30%...
-Tom Dyson

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