Profit Taking Or Something More?
-- June 23, 2003

Stocks fell sharply today, in anticipation of the Federal Open Market Committee's decision on interest rates, which is expected tomorrow. Some analysts chalk up today's decline on the ubiquitous "profit taking," based on the belief that a rate cut is already factored into the market. Others say the market was "overbought" and ripe for a short-term correction.

Regardless of the reason behind today's sell-off, we see several more down days in store for the stock market. That's because Fed Chairman Alan Greenspan is cornered. No matter what he does with interest rates this week, we expect the move will backfire ...

A quarter-point rate cut will likely be a big let-down for the markets! We expect that a quarter-point cut will be considered a non-event, and Wall Street will be severely disappointed. If this happens, expect a big sell-off in the stock market in the days following the rate cut.

A half-point cut will likely result in a brief euphoria, followed by a selling panic! It clearly sends the signal that Chairman Greenspan is desperate, and that he thinks the threat of deflation is far worse than he has let on -- so much for the "soft spot" scenario. There's bound to be some initial euphoria on Wall Street, but any rally will soon turn around and tumble into a selling panic.

No cut by the Fed will likely be a big shock to the markets! We feel it is unlikely, but if the Fed leaves rates unchanged, Wall Street will be shocked. Investors expect at least a quarter-point cut, and have already factored that into stock prices.

No matter what the Fed Chairman does, it's likely to lead to fast-moving markets, ending in a sharp decline.

related article: Dow Slides More Than 120 Points