Stocks Stomped, Bonds Bombed

The stock market extended its hard-down losing streak on Tuesday, with the giant NASDAQ composite finally closing below the 2000-point mark that it had crossed briefly in intra-day trading on Monday. The NASDAQ composite index finished Tuesday down nine-tenths of a percent, and the blue-chip 30 lost just about the same value. The broader blue-chip index of 500 big companies lost more than a full percentage point, and the New York Stock Exchange composite index ate almost a one percentage point loss.

From a technical indicators perspective, chartists are noting that Monday's test of the 2000-point neckline got a confirmation of downward momentum today as the index lost all fear of plunging under it and staying there to the closing bell.

Dark Wraith CyberGloss

A "chartist" is an investor who looks for known and identifiable patterns in historical graphs of stock prices for the purpose of predicting future trends in those prices.

  With the average of the 30 industrials dropping perilously over the past several weeks, all eyes are now focused on a psychologically important barrier for it at 10,000, a place few market analysts could have imagined revisiting after the average had been about 30% higher in the days of the Clinton Administration. Little doubt now remains among rational observers that the stock markets have demonstrated through their efficient pricing of securities exactly how the Bush and Clinton Administrations rank in terms of management of the American economy.

At its regularly scheduled meeting Tuesday, the Federal Open Market Committee of the Federal Reserve raised the key, short-term, federal funds rate a quarter of a percent, relieving investors who had feared the Fed would lift the rate more because of possible fears about inflation.

Dark Wraith CyberGloss

The conveyance of information intended to create a certain desired effect is called "signaling"; hence, the Fed might have been "signaling" that it would push interest rates up a full half percent, even though it had no intention of doing so.

  Why it didn't take a more aggressive action is open to speculation, with the leading theory being that the Fed doesn't see inflationary pressure as being as big a concern as many had thought it did. A competing theory is that the Fed, itself, had encouraged—if not started—rumors that it would push the federal funds rate up more than it actually did. By getting stock and bond traders to brace for a more significant rate hike, the modest action that was really taken could cause a major uptick in securities prices as relieved investors bought stocks and bonds to correct for their earlier expectation.

Aggressive or not in the Fed's latest rate hike, the equities markets were in no mood for a celebration. The strong and continuing downward pricing action across the board in stocks indicates to some that large-scale investors are pointing the way to impending economic slowdown. Whether or not the Bush Administration and its neo-conservative and Right-wing allies in Congress will be able to deflect blame for such a downturn remains to be seen, although the list of candidates to whom they could refer the mainstream media includes the Federal Reserve, OPEC, terrorists, foreigners, liberal media outlets, bloggers, aliens, Saddam Hussein, and animated sponges.