Think you got it figured out yet? Right..
After climbing all week based on the expectation of the Federal Reserve cutting rates, the stock markets dropped like a rock today after the Fed did exactly what was expected. They cut the federal funds rate to 4.25 percent from 4.50 percent and also cut the discount rate to 4.75 percent from 5 percent.
One would normally embrace this as good news. So, how did the market respond? The Dow dropped 2.14%, Nasdaq down 2.45% and the S&P 500 fell 2.53%. Crazy huh?
Just to put it into visual perspective, here are their respective 5-day charts.
As Jerry Lee Lewis might have said “there’s a whole lotta shaking going on”. A whole week’s worth of market gains wiped-out in just a couple of hours, and for absolutely no valid reason.
Although now being reported in hindsight, it seems as though many Wall Street traders wanted a bigger rate cut and pulled out when it didn’t materialize. Seems as though the quarter-point rate cut just wasn’t enough to allay their recession fears.
Today’s negative reaction shows just how much irrational speculation is really going on these days, and how risky things have become. I’m glad I’m still sitting on the sidelines.
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