This is a watch out situation in the making. Depending on how (and of course if) it is done it sets up for unintended consequences. If policies and procedures are antiquated I am all for making changes but this seems like a reaction to a crisis which would end up catering too much to the things that caused the crisis as opposed to long term changes that could generally make the agencies better/more relevant/more able to fulfill their primary mandate.
From the good doctor, Hussman that is...
Investors will likely be reminded of how the market has historically performed following two consecutive cuts in the Discount Rate. We've observed 11 instances of this since 1950, with average total returns in the S&P 500 of 6.18% over the following 3 months, 12.48% over the following 6 months, and 21.05% over the following year. The difficulty with these averages is that the cuts almost invariably occurred well into bear markets, where valuations were already depressed.
Rate cuts strikes me as the sort of thing that is subject spin and data mining. Also it is the type of truism (rate cuts=higher equity prices) that can do the opposite of what it "should." If this snapback ends up being a 30% rally over the course of the next year I'd be thrilled to leave 3 or 4% of that on the table being cautious.
Lastly some of the big bad immediate threats to the market seem to have come and gone without real incident. The First Data deal looks like it is going to happen and commercial paper seems to be rolling, for the most part.
One of the biggies still floating out there is the impact of the mortgage resets that have been underway for a while and will be getting bigger every month for the next few months before they start to get smaller again.
The commercial paper thing turned out to be much smaller than some feared and I believe the mortgage reset issue will also be much smaller. It could cause problems but the sky will not fall. The likely worst case scenario is something well within historical norms that will soon be forgotten, like the early 1990s recession.
Stock prices cut in half (or worse) during the great depression, the 1970s and at the start of this decade. I believe there were earlier instances but my knowledge of history only knows when a couple of the older bad times were (the first decade of the 20th century, the 1870s and the 1830s I believe) not the magnitude of them.
It just doesn't happen that often. The reason for this, I believe, is behavioral. Most investors today know the fear of a market cutting in half because it just happened. Enough time needs to pass so that new participants who did not experience a 50% dive first hand can make the same mistakes (albeit with slightly different details) than past generations made.