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Re: Tech wreck

the first rate cut came in January. Six months is up

Very interesting topic !!!!
Here is an article that could be beneficial:

http://aolpf5.marketwatch.com/news/story.asp?guid=%7BF938D400%2DEB2C%2D488C%2DB14D%2D868CD21796F7%7D...

In case it does not work I will cut and paste some parts that I found very interesting.
The market reaction to the sixth rate cut this year by the Federal Reserve Board brings to mind a lot of tired old sayings, principal among them: don't fight the Fed.

When Alan Greenspan & Co. first cut rates in January, the stock market soared. With the most powerful central bank in the world behind them, investors hoped to resume the bull market party that was so rudely interrupted nine months before by the collapse of the Internet/technology bubble.

They were premature then, and the January rally quickly faded. Still, Chainsaw Al kept slashing rates - 50 basis points at a time - and there was plenty of reason to believe that at some point in the next few months the rate cuts would take hold.

So much for history

Market historians rolled out fact after fact showing that six months after the first rate cut in a cycle, the market would be higher by some cool-sounding percentage, followed by bigger gains nine months out and 12 months out.

Well, it's been almost six months. The Nasdaq is down about 20 percent from its close on the day of that first cut, Jan. 3. The Dow is down more than 5 percent, the S&P 500 about 8 percent. So much for history.

Now, six rate cuts into one of the most aggressive Fed easing cycles the economy has ever seen - with no reaction in stocks -- we have to ask whether the Fed has the power to save us anymore.

The sides on this question are evenly divided between those who think the Fed's rate cuts will soon kick in and start pumping up the economy, and those who think that other factors - such as the strong dollar and the corporate overspending that led to this downturn - may have taken away the Fed's superpowers.

The most severe declines in the stock market are over. But as long as investors believe things aren't going to get any better anytime soon, they'll just hang on the sidelines for the summer, leaving the markets bumping around and making everyone depressed.

Holding its fire

The Fed has done its part to stimulate this economy, which is why its monetary committee might have chosen to go for only 25 basis points this week instead of 50 basis points. Now, it's waiting to see when the effect will take place, holding its fire for another 25-basis-point cut if necessary a few weeks down the road.

Investors are waiting too. But in the last few days, a few rays of light have begun to emerge from the dark forest.

Oracle's Larry Ellison said things look better in the third quarter, sending his company's shares (ORCL: chart, news, alerts) higher by 4 percent on Tuesday. Hand-held device maker Palm (PALM: chart, news, alerts) reported a narrower-than-expected loss and said it's working off excess inventory, sending its shares 23 percent higher Wednesday.

Little by little, good news is starting to emerge anecdotally amid the general earnings warning slaughter. The next few days are going to be hard, as big fund managers wind down the quarter by selling this and buying that to dress up their portfolios.

But once we get into earnings season itself, the second quarter won't be so important anymore, and the market will start pointing toward outlooks for the third.

A better-than-expected performance here - which is obviously what Greenspan is counting on - could help prevent investors from sleeping away the whole summer and start to push things higher before the fourth quarter.

Good defensive plays

You won't see gold funds lead the way when that happens, or emerging markets funds or even value funds, the way they did in the second quarter. See our second quarter mutual fund report. These are defensive plays. They're good ones, but not the choices of the long-term growth investor.

The stock market isn't going to snap back like a slingshot. Neither is the economy. But at some point these aggressive rate cuts will begin to make an impact. It's closer than most people think. The Fed move yesterday underscores that.

So when it does happen, investors like you and I are going to start to slowly venture back into those woods where the bear now lurks. I already have.

Just be sure to wear your shoes.

David Callaway is executive editor of CBS.MarketWatch.com.


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