Individual investors were surprised but grateful for the Federal Reserve’s decision to cut discount interest rates by 50 basis points to 5.75% last week, and mutual funds managers were just as pleased with the decision, according to Dow Jones.
“It’s a very good sign the Fed is being proactive,” said Bev Hendry, managing director of Aberdeen Asset Management in the U.S. “But markets have been on a roller-coaster ride lately. We don’t see that necessarily going away at this point.”
As stocks began trading, the news boosted the Dow Jones Industrial Average by 300 points. It closed up 233 points.
“European markets in particular responded very enthusiastically,” Hendry said, adding that “most markets around the world took the Fed’s action with a big sigh of relief.”
The news shot through global markets since liquidity concerns in the U.S. have been spreading rapidly overseas, he added. “Foreign currencies have been weakening as the U.S. dollar has strengthened,” Hendry said. “That’s making the impact of the credit meltdown over here seem worse overseas.”
Richard Cancelmo, manager at Bridgeway Balanced Fund, believes the markets are still reacting widely to headline news, and isn’t ready to make any major tactical changes yet.
“This is the classic manic-depressive market,” Cancelmo said. “And we’ve been seeing it in big doses these past few weeks.”
Eric Bjorgen, co-manager at Leuthold Core Investment Fund, believes any stabilizing influence the Fed’s decision brings to markets will be short-lived.
“This crisis in credit markets is bigger than a short-term rate cut,” Bjorgen said. “Structurally, this doesn’t do a whole lot for a very unhealthy stock market already on a shaky foundation.”
The Fed’s move was more sentimental than substantive, he added. “The rate cut might slow the sell-off down for a day or two,” he said. “But this is gong to take a longer-period for market forces to play out.”
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.