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October 2007 Market Rewind: The Fed Beat Rolls On

by: Jeff Pietsch November 01, 2007 | about stocks: DIA / IVV / PWB / PWJ / PWP / PWT / PWV / PWY / QQQQ / SPY    

Jeff Pietsch

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This October, a good deal of daily market movement involved speculation regarding the possibility of further Federal Reserve rate reductions. Once again, the Fed moved to the beat of the market and met expectations with a quarter point reduction in both the discount window and federal funds rates. At 4.5%, the funds rate now stands at its lowest level since the spring of 2001. The cut was made in spite of continued dollar weakness, record commodity prices, and a strong third quarter Gross Domestic Product (+3.9%) in a likely nod to on going lending uncertainties and unprecedented real estate declines.

Although it was a rocky month, the rate reductions together with end of month buying, the passage of quarterly reporting jitters, and the reemergence of merger and acquisition news, all of the broader indices managed to close positively. In fact, in a wide divergence, the NASDAQ 100 had its best monthly showing in nearly two years (+7%). Interestingly, it was Internet stocks that led these gains as semiconductors suffered badly. Similarly, in-spite of all of the recent international large-cap talk, small- and mid-cap growth stocks were the big winners this month. We may get a rate induced end-of-year multiple expansion after all. Happy Halloween!

The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500 (SPY) (IVV), Dow Jones Industrial Average (DIA) and NASDAQ 100 (QQQQ) may be traded through ETF proxies, respectively.


Sentiment: Mixed to Positive
Volatility: Medium/Reduced (VIX 16-22)
Direction: Rangebound/ Split

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This article has 1 comment:

  •  
    Nov 01 08:27 AM
    A quick correction to my article, the magnitude of the back to back cuts are equivalent to 2001, the absolute level of 4.5% was last seen in January '06 -- Cheers.
    Reply
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