For Teachers: Lessons on the Dow and the S&P 500

The Stock Market Game Week in Review: Jan. 28 - Feb. 1

Faced with growing risks of a recession, the Federal Reserve (a.k.a., The Fed) made its second significant interest rate cut in a week and slashed the discount rate . The federal funds rate -- the lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans - was cut 3.0% from 3.5%. The rate was 5.25% only four short months ago! The discount rate, which is what banks pay to borrow directly from the Fed, was also cut by half a point to 3.5% on Wednesday [Jan. 30].

According to the Fed, it sees growing weaknesses in both the job market and the battered housing market and hinted it will continue to cut rates if the economy shows more signs of decline.

Despite a rally that put the Dow (DJI Quote) more than 400 points to the upside last week as of Thursday's [Jan. 31] close, the Dow and the S&P 500 (SPX Quote) suffered significant losses during the month of January. The Dow lost 4.6% since the beginning of the month - its worst since January 2000, while the S&P 500 lost 6.1% -- its worst since 1990. Many on Wall Street are touting "as January goes, so goes the year." But what does this all mean? ...