Fed does the expected:
cnnfn.cnn.com
federalreserve.gov
"Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy. The associated easing of pressures on labor and product markets is expected to keep inflation contained.
Although long-term prospects for productivity growth and the economy remain favorable, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future."
We are still in a race. The question is: can the Fed easing cause a rebound in business spending, before rising unemployment causes a collapse in consumer confidence and spending? IMO, this question is not yet decided (that is, not only don't I know the answer, I don't think the answer is knowable now). We are sitting on a knife edge, and which way we fall decides whether the Nas hits 1000 or 3000 next year (of course, there is always the possibility that the manic-depressive Market believes first one scenario, then the other, so we hit both numbers in the next 18 months).
It's hard for me to believe that Fed rate cuts from 6.5% to 3.5% isn't going to powerfully effect stocks (with a 6-24 month lag). But, it's also hard for me to believe that consumers can continue spending at current levels, getting steadily more leveraged as unemployment goes up. And it's hard for me to believe, given the current macro climate, that a (trailing) PE in the high 20s (for the S&P 500) is sustainable. |
