Pre-Fed, No Dread

August 21, 2000
Daniel Beighley

Stocks staged a late-session rally to finish higher Monday, as traders and
market participants remained generally non-committal ahead of Tuesday’s Fed
meeting and and policy statement. The Nasdaq topped the major averages with a
0.6% gain, while the Dow and S&P 500 rose 0.3% and 0.5%, respectively.

Light summer trading volume continued, with 1.25 billion shares changing
hands on the Nasdaq and 728 million shares trading on the NYSE. Many analysts
remain optimistic toward stocks, and quite a few believe that the long-term bull
market is alive and well.

"This is a good stock environment. Investors have rotated their style
towards value. The rotation takes the pressure off a very tired theme like
infinite-value Internet stocks, and it explores new under-owned areas of the
market. This allows a continuation of the bull," said Paul Rabbitt,
President, RabbittAnalytics.com.

"Moreover, the Fed is very likely to be a complete non-event Tuesday,
and I think it is increasingly certain the Fed is done tightening. In addition,
the higher oil prices have the same dampening effect on the U.S. economy as a
0.5% rate hike. We think the next rate change will be lower in the second half
of 2001," he added.

According to preliminary numbers, the Nasdaq lifted 22.84 to 3953.18,
the Dow gained 33.33 to 11,079.81, and the S&P 500 rose 7.76 to
1499.48.

As of Monday’s settlement on the Chicago Board of Trade, the September fed
funds futures contract has priced in a 90% chance that the Federal Reserve will
stand pat on interest rates. For more on how to forecast monetary policy, see
Loren Fleckenstein’s lesson, Forecasting
The Fed With Fed Fund Futures.

Pre-Fed, No Dread

BUY THE FEAR, SELL THE GREED

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