Liz Rappaport
There was also no loosening in the credit markets Monday, which last week would have kept equities markets in the doldrums. A fear-induced rally in short-term Treasuries continued, and the asset-backed commercial paper market kept selling off.
Nonetheless, the Dow Jones Industrial Average ended slightly off its highs for the day, up 0.3% to close at 13,121.35. The Nasdaq Composite also finished up 0.1% to close at 2508.59, and the S&P 500 finished off by a fraction at 1445.55. While positioning to take advantage of a rate-cut rally may be the right strategy in the short term, a fed funds rate cut would only be a temporary salve for the economy. Friday's discount-rate cut provided only a brief respite from the crisis. "Providing reserves and cutting rates will not make bad loans solvent," says Richard Suttmeier, chief market strategist at RightSide.com, and contributor to RealMoney.com. On Friday, the Fed sliced the rate offered to banks and other depositary institutions at its discount window to 5.75% from 6.25%. The move was met with enthusiasm and a sense of reassurance that the Fed will respond to the seizure in credit markets and to institutions' inability to fund their operations. Evidenced by the still-tight conditions in the credit markets Monday, the discount-rate cut provided just temporary relief, and mostly to the stock market.
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