Why the Bears Are Smiling

Halfway through 2005, the stock market has nothing to show for itself. And if you're waiting for the Federal Reserve to stop raising interest rates before you buy equities, don't hold your breath.

Last week, the Fed logged its ninth straight quarter-point rate hike and repeated its "measured pace" mantra, leaving no end in sight to a tightening campaign that began more than a year ago. Stocks tumbled, and the spread between short- and long-term interest rates continued to narrow, exacerbating the "conundrum" first mentioned by Fed Chairman Alan Greenspan.

Conventional wisdom dictates that when the monetary gatekeepers raise short-term rates, long-term rates should follow. This time around, they've fallen, a phenomenon that recurred on Thursday after the Fed's announcement. ...