Is the Bottom In?
For those of us watching the stock market over the last several months, it has been a wild roller coaster ride. Financial and retail stocks have been battered. The S&P and the NASDAQ are both still off over 15% each from highs set in October of last year. Commodities such as gold, oil, and food have skyrocketed. Inflation fears have been rampant.
Wall Street analysts widely predicted that the Federal Reserve would drop their key interest rate a full 1% in order to stave off a financial meltdown at their meeting this past Tuesday.
But an interesting thing happened on Tuesday. When the Federal Reserve met, they decided 0.75% was enough.
For those of you keeping track at home, the last time the Federal Reserve failed to meet Wall Street expectations, there was hell to pay. On January 30th, when the investors and bankers expected a 0.75% cut and received only 0.50%, Wall Street threw a fit, with the Dow actually ending the session lower by almost 40 points after having been up over 200 points prior to the announcement.
But that is not what happened on Tuesday. The markets stuttered for a moment, as if digesting the information it had received, and then continued its march upward.
Another important note is that there was a single dissenting vote arguing for less aggressive action in the January meeting, while there were two at this most recent one. That does not bode well for the probability and depth of rate cuts in the near future.
Today, commodities prices are moderating. Oil is back under $100 a barrel and gold lost over $100 an ounce this week alone. The dollar is seeing renewed strength as well.
Is the bottom in on this market downturn or is it simply a calm before the real storm? No one can know for sure. But I’m willing to bet that this is a great time to buy into a good index fund. A year from now, I’m sure I will be happy I did. If the markets do turn south substantially again, it’s just another opportunity to buy at a bigger bargain. Living below my means today will mean more money to invest when there are bargains to be had.
Don’t let fear chase you out of this market. Keep your time horizon in mind and invest for the long haul.
Links>>
- The Motely Fool reminds us that market downturns are to be expected. For the wise and prepared, there are profits to be made.
- How Not to Ruin Your Life - The last sentence says it all, “The good times will come back when you least expect them.”
- The Simple Dollar - Trent is getting his investment plan off the ground at a great time. Even index funds can be on sale.