Thanks to the Fed’s stunning and surprising announcement to cut interest rates by 75 basis points, a melt-down in the domestic markets was largely avoided. After the Dow having been down some 460 points in early going, and closing down “only” 128 seemed to feel like a victory.
Yesterday, world markets got absolutely hammered and the same was about to happen on Wall Street this morning. While the Fed’s move prevented the worst, it doesn’t mean all wounds are healed. Quite the opposite! Many view today’s reduction in interest rates, only 9 days before the next Fed meeting, as a desperation move and an admission that economically we’re in worse shape than generally assumed.
While I believe that at this point the major trend is towards lower prices, I can never be 100% sure, since after this month’s drubbing a rebound is certainly a possibility. While I have added a small short position to cover some of our few sector holdings, I am also watching for any signs of trend reversal and will pull the trigger to go to all cash if market behavior dictates such action.