Full Disclosure Finance

By Andrew

The US Federal Reserve voted today to cut its funds rate by 1/4 percentage point to 4.25%. The cut, the third this year, disappointed Wall Street which sent the markets tumbling. The Dow fell nearly 300 points or 2.14% to 13,433, the NASDAQ fell 2.45% and the S&P 500 2.53%. The Fed also cut its discount rate, the rate it uses when lending to banks, by a matching 1/4 percentage point to 4.75%. Wall Street was looking for a more aggressive approach to help the economy overcome the credit and mortgage crisis. Investors were expecting a cut, the only question was the size. Many were expecting a 1/2 point cut, especially at the discount window.

The language in the release from the central bank was very passive. They acknowledged that they are concerned about inflation saying that, “…economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.” They also expressed concern that some inflation risks remain stating that, ”Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.” However, the decision by the Fed lacked the decisive action that many were looking for. The disappointment on Wall Street coupled with the rally in the markets leading up to the Fed meeting today intensified the sell-off. The financial sector got hammered after the rally it saw last week, and tech followed suit shortly there after.

So how do we play this. For the long term investor I think this is a great opportunity to buy quality stocks on the dip. Make a list of stocks that you’ve been wanting to get into and use this sell-off as on opportunity to do just that. Take your time and add to positions slowly. Choose stocks that have been working and should continue to work when the sell-off ends. Companies like Apple, AT&T, McDonald’s, and Cisco are no different tomorrow or next day than they were during the runs that they’ve undergone in the past year. Although the downtrend may continue for the short term, in the long run that stocks that have been working will continue to work. The market is over emotional. It will overreact up or down to particular events. If you can leave your emotions on the sideline you can identify these dips as opportunities and get great stocks at a discounted price.