September 18, 2019
Today, the Federal Reserve Board (Fed) cut the overnight Federal Funds rate by 0.25%. This was expected by everyone in finance. The rate cut was done in reaction to global currency rate cuts. Our economy remains strong.
Markets tend to react aggressively to any announcement by the Fed and today was no different. The immediate reaction was negative. Why? Computer algorithmic trading had buys and sells set for either a 0.25% rate cut or a 0.50% cut (40% probability). Once the announcement was made, the trades on the wrong cut had to be unwound, thus the selling.
From 2:00 pm to 2:45 pm the S&P 500 Index declined. After that, to the 4:00 pm close the index went mostly up. In other words, just another normal Fed rate announcement day.
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George N. Luciani, CFP®