3/26/2007: Equity Markets Rallied Last Week
The S&P 500 gained 3.5% last week, which erased most of losses suffered from February 27 through March 5. The index is only down 0.9% from the close on the 26th, and it is back into positive territory for 2007 with a 1.6% return. The biggest day of last week was Wednesday. The S&P 500 gained 1.7% after the FOMC meeting announcement. As expected, the FOMC left the overnight lending rate at 5.25%; however, a change to the statement suggested the Fed changed its bias from tightening to neutral. The market's exuberance in reaction to the Fed statement was perplexing. Prior to the meeting, the Fed Funds futures market was already discounting the stated tightening bias, projecting that the next move to be a cut. Interestingly, Fed Funds futures didn't move much in reaction to the change in the statement. The average expected overnight lending rate in July dropped from 5.19% to 5.15% (suggesting the odds of a cut by the June meeting rose from 24% to 40%), and the