Keeping Perspective

Thus far this week, the markets bounced back significantly on Monday with hopes of central bank intervention and perhaps a similar belief to ours that the sell-off was overdone. In total the Dow Jones Industrial Average moved 1,294 points higher on Monday, representing a gain of over 5% and the single largest daily point gain in history.

On Tuesday, the Federal Reserve took action announcing a 50 Basis Point (i.e. 0.50%) reduction to the Federal Funds Target Rate. This now leaves the benchmark rate in a range of 1.00% – 1.25%. The cut itself was not surprising as it was likely priced into the markets already but that timing of the cut took many by surprise as most thought they would wait until their next scheduled meeting on March 17-18 to announce such a move.

During a press conference following the announcement of the rate cut, Fed Chair Powell noted the underlying strength of the U.S. economy and labor market and indicated that the cut was done to help provide support to the economy during the uncertain time-frame of the coronavirus outbreak. Chair Powell also said that they will continue to monitor the situation and take additional actions as necessary, remembering, of course, that their two mandates remain to promote maximum employment and price stability in the U.S. It is not entirely inconceivable that the Fed would “take back” this cut at a future date when the coronavirus threats to the economy are deemed to be behind us, though the timing of such increases may be difficult. As we write this post, market reaction to the “surprise” cut was initially mixed but turned markedly negative as the day moved along pushing the yield on the 10-year U.S. Treasury below 1.00%.

While no one can know the full extent of the consequences of the coronavirus at this time, investors should keep perspective on their longer-term financial goals, maintain discipline, invest in quality companies and revisit the diversification that may, or may not, be in place within their portfolio strategies consistent with their own investment time-frames and tolerances for risk. If they do not have a financial plan in place or are unsure of the level of diversification within their portfolio strategies, they would be wise to consult with financial professionals to assist in both cases. From our experience, having a well-constructed, longer-term financial plan in place often provides solace during periods of heightened volatility and uncertainty.

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Disclaimer: The accuracy of this information is from sources we believe to be reliable but is not guaranteed.

Disclosure: Hennion & Walsh Asset Management currently has allocations within ...

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