Thank You Greenie

January 3, 2001
Daniel Beighley

Alan Greenspan finally threw the market a rather large bone in the form of a
surprise 50-basis-point rate cut, and that helped spark a massive 14% Nasdaq
rally that brought many of the giant-cap techs back from the abyss. The rate cut
was the first in nearly two years, and it suggested that the Fed may be
admitting that it waited too long to begin the easing process.

Strength in financials, telecom, and retailers boosted the blue-chip indexes
as well. The Dow and S&P 500 were also solidly higher, with the Dow gaining
2.8% and the S&P 500 jumping 5.0%.

Economic news that preceded the Fed’s move showed yet more acceleration in
the economic slowdown. November construction spending fell 0.6% which was much
slower than the 0.2% increase analysts had expected, and that may have helped
precipitate the Fed’s easing action.

Nasdaq volume soared 57% above Tuesday’s level as 3.09 billion shares traded.
NYSE volume also surged to 1.87 billion shares which was 70% higher than
Tuesday’s level.

The big test will be in the coming days as rally after rally since the April
declines have succumbed to selling pressures. Traders remain optimistic about
the Jan. 31 Fed meeting where many believe another 50 basis point rate cut is a
distinct possibility. Either way, the fact that the Fed lowered rates indicates
that there certainly will not be any rate hikes for quite a while.

“The 25% to 30% returns of the last three to four years, coupled with
the New Economy craze spoiled investors and forced them to chase momentum and
performance instead of fundamentals. Buying stocks long term equated to a month
or two at the most, with the instant gratification quotient high when initiating
positions,” said Brian Belski, Fundamental Market Strategist, U.S.
Bancorp/Piper Jaffray.

“Unfortunately, that instant gratification has turned into piles of
losses this year, causing emotional selling and tax-loss selling at the end of
the year that only accentuated and already oversold correction,” he added.

According to preliminary numbers, the Nasdaq rocketed 324.82 to 2616.68, the
Dow gained 299.60 to 10,945.75, and the S&P 500 added 64.26 to 1347.53.

Looking ahead, the November factory orders report will be released on
Thursday at 10:00 AM ET, and analysts expect an increase of 1.2%.

Thank You Greenie

BUY THE FEAR, SELL THE GREED

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