a 75 basis cut ... would have allowed the market to regroup and form a base
Maybe. But you have to realize that by any historical measure, the market is still overvalued. The P/E of the S&P 500 is 22; the historical average is 14. The bubble was kept inflated for the last two years by huge credit flows and all kinds of accounting tricks. These tricks (e.g., paying employees stock options instead of cash, buying earnings through acquisitions, running a hedge fund on the side that invests in internet stocks) stop working in a falling market. Not only that, they feed into a vicious cycle; costs rise (employees want cash money), earnings fall very sharply, and prices follow them down.
Also, the malinvestments and overcapacity caused by the bubble need time to be worked out. For the last three years, a gazillion dollars stampeded towards the 'New Economy' while the 'Old Economy' couldn't get a loan for love or money. Now the gazillion dollars have stampeded out again, or just died and gone to money heaven. Needless to say, a good many business decisions of the past three years don't look so good anymore.
But cheer up, we may get a rally after April 15th, when earnings season and tax related selling is over. I just wouldn't count on it lasting. |
