Historically, rate cuts have been good for stocks

The Ticker

March 21, 2001|By JULIUS WESTHEIMER

NOW THAT the Federal Reserve has cut interest rates for the third successive time, many people wonder, How will this action affect my stock market holdings? For clues, lets look back:

"There were 13 periods since 1921 in which the Fed made three rate cuts in succession," says Ned Davis Research, "and the market was almost always higher a year after the third rate cut.

"Other than 1930, the start of the Depression, the Dow gained an average of 21 percent in the 12 months after the last of the Fed's reductions." The Nasdaq, founded in 1971, rose an average of 39.8 percent in the 12 months after three rate cuts.

What stocks benefited most? "A study of Fed rate reductions from 1980 to 1999," says Smart Money, "shows that the biggest gainers in the year after the rate cut were retail, technology, health care, broadcast and other media stocks."

"While the March 2000 highs in the Nasdaq and other tech-heavy averages will likely stand for many years, tech is far from dead. Our favorites are IBM Corp., Intel Corp. and AOL Time Warner Inc." (Personal Finance)

"Nasdaq has been so bad that it's hard to conceive of it now turning ... and becoming a star player - but that's what my indicator is saying will happen." (Barron's)

"A year ago millions of investors thought there was no risk of overpaying for a Cisco Systems Inc. or a Yahoo Inc. because techs always bounced back. Those people now feel all equities are too risky. Both views are very wrong." (Forbes)

"The precious-metals complex has come alive, supporting my view that its eight-year cycle has finally turned the corner." (Harley Market Letter)

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