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Fed cuts rates by 50-basis points

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The Federal Open Market Committee announced it was cutting its fed funds rate by 50-basis point, which now has the fed funds rate at 1.25%. In a unanimous decision and a 12-0 vote, the Fed Governors backed today's move with the belief that an accommodative stance of monetary policy, coupled with still- robust underlying growth in productivity, is providing important ongoing support to economic activity.

However, the Fed believed that the incoming economic data has been trending lower and confirming greater uncertainty, in part attributable to heightened geopolitical risks, that is currently inhibiting spending, production, and employment. The Fed felt comfortable with today's 50-basis point cut as inflation and inflation expectations remain well contained.

The Fed believes these combined circumstances warranted further monetary easing and should prove helpful as the economy attempts to work its way through this current soft spot. With today's action, the Committee believes that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals in the foreseeable future.

Immediately after the FOMC decision, the December 30-day Fed Funds futures contract (ff02z) jumped to 98.76, which is in line with today's 50-basis point cut. Action here currently has the MARKET looking for the FOMC to stand pat on rates at its next meeting, but we will monitor this contract going forward.

Right after the FOMC announcement, Treasuries traded brisk, but are now closed. After a rather volatile 45-minutes of trading, the 30-year Treasury futures (us02z) 109'30 +0.45% finished in positive territory after a brief spike higher to 110'22. By end of day settlement, this longer-term bond's YIELD ($TYX.X) finished fractionally lower at 5.068%. The benchmark 10-year YIELD ($TNX.X) ended lower at 4.035%.

A massive round of buying was seen in the very short-term 13-week with YIELD ($IRX.X) plummeting to 1.207%, which marks new multi- year lows.

Stocks have been more volatile in since the FOMC announcement with the Dow Industrials (INDU) having turned higher to trade a session high of 8,756, but then turn sharply lower to 8,590, a 166 point swing in 15 minutes, to now recoup those losses and trade up 45 points at 8,724. Similar price action was seen in the SPX, OEX, NDX and NASDAQ Composite, as all now trade in positive territory. Current action has the smaller-cap Russell- 2000 Index (RUT.X) 390 +1.16% leading the broader market average gains.

Early session strength in the Airline Index (XAL.X) 43.99 +7.4% has furthered and now as this group at a session high.

Banking sectors had the S&P Banks Index (BIX.X) 288 -1.07% and KBW Bank Index (BKX.X) 778 -0.57% trading in positive ground, but then quickly reversing lower with -2% declines. However, we've started to see some losses abate as both sectors move back toward the unchanged levels.

Volume picked up markedly on both the NYSE and NASDAQ after the FOMC announcement with volume brisk on the NYSE at 1.3 billion shares, while NASDAQ trades much heavier at just over 1.7 billion shares.

Breadth is positive at both the NYSE and NASDAQ with advancers outnumbering decliners by a 19 to 12 margin at both exchanges.

Combined bullishness is found in the new highs versus new lows category at both the NYSE and NASDAQ today. NYSE currently has 24 stocks trading new 52-week highs versus 22 stocks trading new lows, while NASDAQ shows a more impressive 46 stocks trading new highs versus just 24 stocks at new lows.

Cisco Systems (NASDAQ:CSCO) $12.89 +1.4%, Sun Microsystems (NASDAQ:SUNW) $3.62 +14% and Intel (NASDAQ:INTC) $19.03 +3.7% are the most actively traded stocks on the NASDAQ, while Lucent (NYSE:LU) $1.29 +4.9%, Nortel (NYSE:NT) $1.49 +11.19%, Pfizer (NYSE:PFE) $33.46 +2.5% and Calpine (NYSE:CPN) $3.46 +24% are the most actively traded on the NYSE.

Jeff Bailey

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