Follow The Bouncing Market Ball

The Federal Reserve just cut its target for the federal funds rate, the interest banks charge on overnight loans, by 50 basis points. The fed funds rate now sits at 1%, its lowest level since 2004.

Today’s cut was the second half-point reduction in the fed funds rate this month. If you recall, the Fed slashed the rate by that amount in a coordinated move with foreign central banks on Oct. 8.

In the accompanying statement explaining its action, the Fed said the "intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

The central bank also said that the spread of economic weakness had lowered the risks that inflation would get out of control.

Stocks reacted rather mildly to the news, as the move was largely anticipated on Wall Street. I think that after Tuesday’s near 900-point, 10%-plus-move higher in the Dow, buyers and sellers are taking a much needed breather.

As you can see from the chart above of the S&P 500, despite the big up day on Tuesday, we still are way below both the 50-day (blue line) and the 200-day (red line) moving averages.

In my opinion, no move by the Fed, no move by the Treasury Department, and no election of a new president is going to prompt stocks to rally all the way back above those moving averages — at least not anytime soon.

I think we are in for a lot more volatility, a lot more buying and selling, and a lot more market angst before the crash of 2008 can be put in the books. That means you are going to have to follow this bouncing market ball for a while longer.

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