By Clyde Noel

Greenspan gave investors hope for 2002. When the Federal Reserve announced a surprise cut in interest rates last week, it sparked a strong rally in the stock market that could carry into next year.

The Fed has cut rates four times this year, and many investors expect a further reduction when the central bank holds its next regular meeting May 15. Last week’s cut brought the benchmark federal-funds rate to 4.5 percent. That’s what banks charge each other for overnight loans and it’s the lowest in seven years.

That Fed action helped the blue chip Dow industrials to end the week up 452.91 points or 4.5 percent. The Nasdaq had a bad Friday, but still advanced 201.86 points, or 10.3 percent for the week.

The Town Crier stock index had a stellar week, increasing 11.30 percent, and lending a cheerful feeling towards the virtual $50,000 invested in 50 stocks Jan. 1. The loss is now only $310.

Helping reduce the paper losses last week were large cap stock increases by BEA Systems at 33.39 percent; Intel, 15.33 percent; Network Appliance, 41.19 percent; Nvidia, 23.79 percent; Sun Microsystems, 15.33 percent; and Varian Semiconductor, up 20.71 percent.

This columnist looks at last week as a bull rally within a bear market and I believe before the end of the year, the Nasdaq will be down below 1,800, even though it will rally to 2,500 during the year.

Historically, May has never been a good month and prospects for a strong summer rally are slim, so the Nasdaq could be below 2,000 by late summer.

Expectations from the Nasdaq are rooted in Economics 101. With all the layoffs and corporate cutbacks, the growth in consumer and business spending will slow substantially.

A surprise Fed rate cut is no guide to long-term market direction. Lower rates will enhance demand and profitability in the long run, but it’s uncertain when the interest rate cuts will take effect. Three months to six months is the historical view.

Investors should take the long-term view (5 to 10 years) to investment since lower interest rates will provide a strong support for eventual improvement.

Investors should take advantage of current weaknesses when they occur and build positions in quality companies that are leaders in their sector.

Noel, a seasoned investor, covers the stock market for the Town Crier.