Wednesday - March 19, 2008
Yesterday, the Fed voted to lower its target for the fed funds rate by 75 basis points, rather than the 100 basis points that many had hoped for. The vote was not unanimous, as Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser wanted a less aggressive cut. The Committee gave a more negative assessment of the economy, but also continued to express worries about inflationary pressures.
The discount rate was also cut by 75 basis points. With Sunday's 25-basis point cut, this resulted in a three-day, 100 basis-point cut in the overnight rate.
The statement can be read at: http://www.federalreserve.gov/newsevents/press/monetary/20080318a.htm
The markets were volatile following the rate cut announcement, but rebounded to close with substantial gains. Key to the positive day was earnings from Goldman Sachs (GS) and Lehman Brothers (LEH). Profits from both brokerage firms were above expectations that had been significantly lowered.
I was happy to see the strong upward move in the markets, but would caution about getting overly excited. Fundamentally, the credit crunch continues, the trend in aggregate earnings estimate revisions remains negative and there are near-term double-top formations that the Dow and S&P 500 need to beat. Therefore, it is important to continue focusing on attractive valuations and rising earnings estimates.
Wishing you prosperity,
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Steve Reitmeister, Editor-At-Large for Zacks.com, explains why buy-and-hold investing is dead. Listen to his audio here.
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