The Federal Reserve slashed the Federal funds rate 75 basis points, from 4.25% to 3.5%, in a surprise move ahead of their scheduled meeting next week. This, on top of the earlier 50 basis point move, was in response to what the Fed described as the worsening economic conditions, which were evidenced over the weekend by the sell-offs in the foreign markets. The sell-offs were an expression of concern by the overseas markets about the ongoing credit problems and possible recession looming in the US.
The US stock markets opened with the Nasdaq down 4% shortly after the opening, while the Dow was down 500 points. By mid-morning, the Dow had climbed back to nearly even, recovering all but 75 points of the decline. It finally ended a seesaw day at -128.11 at 11,971.19. Led by homebuilders, financials and retail stocks, the unholy trinity of sectors that has weighed heavily on the market in recent weeks, these stocks rebounded as they were expected to be sectors most immediately helped by the effect of the Fed move. Cheaper money and easier borrowing, it is hoped, will help ease the crush on the credit markets and allow consumers to renew spending.
With the Fed action and the market response, pundits of all shades of opinions were expressing themselves: long-term investing proponents counseled staying the course, value investors were looking to find a reasonable bottom and start bargain hunting, even on the dreaded financials; technical analysts were looking for something, some group, some stock or some market to build a technical bottom, establish a base and renew the upward trend that peaked in October, while short sellers had done their thing and day traders as well as micro-cap experts were celebrating the continued volatility and surprise directions in the markets.
To those who were caught out, they no doubt bought high and sold low (or will do so), so while the markets may not capitulate, many private investors may have (or will) head for the exits.
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