The Bipolar Stock Market

Stocks are celebrating another Federal Reserve rate cut, but don’t expect the celebration to last. As my editor noted this morning, sometimes the stock market is a little like your bipolar uncle. Enjoy his good days, but on the bad days stay out of the way. (UPDATE: I was right.) This is a good day for sure. Once again, investors hope the Federal Reserve, along with other federal policy makers, has found clever solutions to the subprime mess. But we’ve been here before.

Before rate decisions on Oct. 31 and Dec. 11, the markets were moving higher on hope of a deep Fed cut. When those hopes were dashed (with mere quarter-point adjustments to the Fed funds rate), stocks sunk back into their depressed state. Then on Jan. 22 and Jan. 30, the market got what it wanted. The Fed cut rates by 0.75-points on Jan. 22 and another half-point on Jan. 30. For two days after each cut, there was celebration on Wall Street. Then the euphoria wore off, and we found ourselves stuck with the same stubborn problems: A weakening economy and dysfunctional credit markets. Since the credit crisis began, it's the same pattern over and over again. Will this time be any different? Probably not. But maybe, just maybe, the Fed and other policy makers are now so engaged – not just through rate cuts but through other creative solutions -- that they finally make some progress against the credit turmoil.

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