The stock market sold off strongly in the afternoon on Tuesday (Dec. 11).
*****
Orwell's "Big Brother" would have been sick with envy at the Federal Reserve's magical ability to make otherwise rational people 1) Remain oblivious to history, and 2) Publicly announce the details of how their fondest dream will soon be true.
I had that thought while reading this morning's financial headlines about the anticipated rate cut. Examples included "Fed cut paves path to Dow 15,000," and, not to be outdone, "Dow 20,000?"
The tone of the news obviously changed after the central bank actually did cut the Fed funds rate and stock market prices "reacted" in a nosedive. Even so, the notion that the decline was due to "disappointment" over a 25-basis point cut instead of 50-basis points simply begs the question:
Why would anyone think that the Fed's actions have any influence whatsoever on the trend in the stock market?
The Fed has similarly cut the discount rate twice in recent months, and on both occasions (Sept. 18, Oct. 31) the stock market immediately rallied... only to see prices give back those gains and more, within a few short days or weeks.
Mind you, these are recent and relatively minor instances. There are longer-term examples that unfolded for years, such as the Fed's historic campaign in 2001-2002 that saw a DOZEN rate cuts, during which time the S&P 500 lost HALF of its value.
More dramatic still was the Bank of Japan's campaign that took rates to virtually ZERO for entire decade, even as their Nikkei stock index declined and/or languished over the entire period.
There's nothing new about this information -- we've spelled it all out before, as recently as Bob Prechter's Nov. 27 appearance on Bloomberg television. With charts and facts, Bob showed how powerless the Fed really is; he also reminded the audience that "People should be careful of what they wish for when they ask for lower rates."
Yes, the financial establishment labels Bob Prechter a contrarian. But, what does it say about that establishment's state of mind when arguments based on facts & evidence make a person "contrary"?
All the charts Bob included in that interview -- in fact, everything he said at the time and more -- is in the current Elliott Wave Theorist and Elliott Wave Financial Forecast. See it all on your computer screen in minutes, via the fast steps below.