What’s Greenspan’s Plan?

February 27, 2001
Daniel Beighley

A sharp drop in new home sales and a big decline in consumer confidence
raised hopes Tuesday that the Federal Reserve would quickly cut rates, but
less-than-enthusiastic comments from a Fed board member caused the Nasdaq to
fade into the close with a 4.4% loss. Strength in financials, however, helped
protect the blue chips from the pain, as the Dow ended slightly below par and
the S&P slipped 0.8%.

Volume remained about flat with Monday’s light levels, as 1.8 billion shares
traded on the Nasdaq and 1.1 billion shares changed hands on the NYSE.

About the only positive aspect of the Nasdaq’s action Tuesday was the fact it
managed to hold above the 2200 level.

Consumer confidence came in at 106.8 which was significantly below the
expected 112, and that took the index to its lowest level in five years. Despite
the clear evidence of a rapidly decelerating economy, traders remain concerned
that the Fed will not cut rates fast enough to avert a painful recession.

All eyes and ears will be on Alan Greenspan’s Congressional appearance
Wednesday, and word has it that he had updated his prepared comments since his
meeting two weeks ago.

“The market is looking for a bottom in the near term with anticipation building that Alan Greenspan will provide the catalyst for a move to the upside with his rate cuts
and very possibly one this week after he meets with Congress,” said Scott Cummings, General Partner, Agile Asset
Management.

“I think the follow-through in the market, however, will be short lived as the market is
coming to grips with a recovery that is not V shaped and could be a much slower protracted return to better earnings growth in the latter part of the
year,” he added.

According to preliminary numbers, the Nasdaq fell 100.72 to 2207.78, the Dow
eased 5.65 to 10,636.88, and the S&P 500 slid 9.71 to 1257.94.

Financials were strong on optimism that the Fed will promptly come to the
rescue with another round of rate cuts. The fact the insurance index climbed
back above its 200-day moving average bodes well for the group since that key
level is often used by institutions as a sign of strength. Top insurers also
looking up and trading back above their respective 200-day moving averages
included Cigna
(
CI |
Quote |
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PowerRating), up 4.76 to 110.86 and AFLAC
(
AFL |
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PowerRating) up 2.68 to 61.35.

One tech that avoided the wreck was Microsoft
(
MSFT |
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PowerRating), which ended the
day down just 3/16 to 59 3/8. The company continued to make its case with the
court that there were prejudices by the judge who ruled that the company should
be broken in two, and that his ruling should therefore be over-turned.

Looking ahead, the fourth quarter GDP report revision will be released
Wednesday at 8:30 AM ET and the Chicago Purchasing Managers report will be out
at 10:00 AM ET. Analysts expect a 1.0% GDP rate, which is down from 1.4%. As for
the PMI, a reading of 42% is expected.

What’s Greenspan’s Plan?

BUY THE FEAR, SELL THE GREED

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