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Most major stock market indexes continued to decline in early April. Perhaps investors were spooked that when the earnings reports for the first quarter of 2001 were released they would depict an abysmal picture of the implosion of corporate earnings in many sectors of the U.S. economy.
Ironically, when the earnings reports were released in early April reinforcing this thesis, investors became bullish and as such, started to bid up many stocks.
Adding more fuel to investors passion to buy stocks in April was a surprise announcement by the Federal Reserve (Fed) on April 18th, lowering short-term interest rates 1/2% point. The Fed cut the Federal Funds Rate to 4.5% and the Discount Rate to 4% .
In its statement, the Fed said that slumping capital spending, weakening foreign markets and the destruction of consumers' stock market wealth "threatens to keep the pace of
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economic activity
unacceptably weak", as its reasoning to lowers short-term
interest rates.
The Fed's actions was a big surprise to Wall Street. At the
time of the unscheduled announcement by the Fed, most stock
market indexes were already in higher territory for the day.
Most stock market indexes skyrocketed after the Fed's announcement,
finishing the trading day with historically high returns.
The Fed's move on April 18th was the second time this year
that the central bank had lowered short-term interest rates
outside of its normal scheduled meetings and the fourth cut
in all.
Most major stock market indexes continued their ascent throughout
April. April finished as one of the strongest single month
performances for the stock market in almost a decade.
The technology-laden
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NASDAQ Composite Index (NASDAQ) set a record for its best April performance in its history, a year after its worst ever April performance in 2000.
Most major stock market indexes continued their ascent in May, peaking in mid May, coinciding with the Fed's regular meeting on May 15th.
The Fed lowered short-term interest rates another 1/2% at this meeting, bringing down the Federal Funds Rate to 4.0% and the Discount Rate to 3.5%. This was the fifth time the Fed lowered its target rates 1/2% since the beginning of 2001.
Wall Street would have normally embraced the Fed's action on May 15th , however, investors chose to focus on the Fed's concern about the continuing decline of the U.S. economy and as such, most stock market indexes began to retreat off their highs as May came to an end.
The last two weeks of May
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