Look at the Facts About Fed Eases

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Rate cuts work! You wouldn't know it from reading the papers though. Misleading articles have appeared regularly since the Fed's cut last week, perhaps making you think that this is a high-risk moment to invest. Just yesterday Byron Wien, one of my favorite strategists, participated in an article in The New York Times that could only be considered wrong, historically. It purported that, other than the cuts in 1995 and 1998, Fed eases don't help stocks. If you read this piece you would be thinking of selling stocks, not buying them.

Nothing could be further from the truth. Right after the first cut is the lowest-risk environment possible. But don't take my word for it. Let's look at the historical record:

Easing Street The S&P 500's response to Fed interest-rate cuts.
Date of Ease	S&P 500	3-Month Change	12-Month Change
Feb. 5, 1954	26.20	8.0%	41.1%
Nov. 15, 1957	39.44	4.8%	34.6%
June 10, 1960	58.00	-3.3%	14.9%
April 7, 1967	89.94	1.9%	5.6%
Aug. 30, 1968	98.74	9.8%	-3.3%
Nov. 13, 1970	84.15	17.0%	9.6%
Nov. 19, 1971	92.13	14.3%	25.4%
Dec. 9, 1974	65.01	30.7%	34.3%
May 28, 1980	112.66	8.4%	18.5%
Nov. 2, 1981	117.08	0.8%	17.4%
Nov. 21, 1984	164.18	9.7 %	22.7%
June 6, 1989	322.03	2.3%	13.3%
July 6, 1995	547.26	6.4%	20.1%
Sept. 29, 1998	1048.69	18.4%	20.9%
Source: Baseline.

That's 50 years worth of history that is on the side of the bulls. Thirteen out of 14 times, the S&P was higher three months after the Fed began easing. Twelve months out you usually made 20% on average. (It didn't work in 1968, because the Fed eased and then not long after tightened.)

I know that anecdotally everybody remembers the blast-off from 1998. But I think that Byron Wien's focus on 1989 misleads people because, not long after, we had Iraq's invasion of Kuwait. Yet you still made money out one year.

Of course, it seems like a dangerous time. There are tech collapses and NDX breakdowns and worries about credit. But there were every one of these other times too. Which is why I want to be buying, not selling, for the long term here.

Random musings: Have you ordered TheStreet.com's Guide to Smart Investing in the Internet Era yet? So many of your email questions are answered in it that I know you would do well to buy it.