Then, with less than an hour left in the session, a former Fed governor (now speaking for Bear Stearns) declared that the chances of a between-the-meetings rate cut next week from a market-watching Fed were now 60 percent. And in a rush, the traders found their optimism, running up all three indexes back up off Friday's lows.
TIME.com: So was this the bottom, or just false hope?
DK: Well, those CPI [Consumer Price Index] numbers are still hanging over this market like a hammer. There's a big fear that Alan Greenspan has no room to move. The rally at the end of the day was a good sign, although it'd be more encouraging if it had happened on its own instead of on a Fed rumor.
I think the end is in sight. The companies coming out with these bad earnings reports are starting to say, "Look, there's nothing wrong with our company. These are economic problems, pure and simple." The weakness in the tech sector is across the board, and everybody seems to realize that there's no good news coming from anybody. Pretty soon, we're going to have discounted all the bad news, which clears the way for some kind of value-based turnaround.
What about the chances the Fed will act again next week?
DK: Things maybe have to get a little worse first. I think there's no question Greenspan watches the markets, and NASDAQ in particular. He says he doesn't, but he talks about the wealth effect and the negative wealth effect way too much not to be interested.
The tech investors who got rich in 1999 and early 2000 are the ones who have been keeping the economy going this long, and the crash last spring and summer, I think, presaged the sharpness of the slowdown we're seeing now. So Greenspan has to believe that any recovery has to include some rebound in the NASDAQ if it's going to stick.
If this is the bottom Friday, he may not feel enough urgency to act, because a second between-the-meetings cut could look panicky. But if the NASDAQ keeps falling, say to 2000 in the next week or two, I think Greenspan will make a move. He can't just watch it crumble and continue to stand by.
The NASDAQ hasn't really responded to the last few rate cuts. Will it work this time?
DK: Well, techs have had too much bad news of their own lately to really move on a rate cut. But as the problems are increasingly blamed on the overall economic picture, we're probably somewhere near the bottom for tech stocks, whether or not we're there just yet.
The mood right now is dark worries about stagflation, and whether or not the Fed's hands will be tied. If Greenspan shows he's not worried about inflation, and cuts again before the March 20 meeting, that could really get everybody thinking the other way.