11 December, 2007

Expected Fed .25% Rate Cut Sinks Market on Dec 11

Well, the expected happened. The Federal Reserve cut interest rates by a quarter percent to 4.25%. That was the news the market was looking for, however in the run up to this announcement there was talk of perhaps a 50 basis point cut to stem the tide of recession talk going into next year.

That, however, did not happen and traders sold off in numbers.
Dow Chart

The severe drop just as the announcement came out is truly indicative of trader mentality today. I believe the drop off was overdone. Dow Jones, Nasdaq and S&P were all off about 2.5% today. Canadian markets, portrayed by the TSX Composite Index fared a little better, only dropping 1.5%. The market still has a chance to rally into the New Year on the backing of a relatively strong US economy, and this "expectations blip" or "sell the news" moment, or whatever you want to call it will be just that, a blip. Valuations and Fundamentals are as important as ever during heavy sell-offs so you, as an investor know exactly what is truly On Sale.

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