Fed Leaves Rates Unchanged

The market was enjoying a huge rally before the Fed meeting and extended that rally when news broke that the Fed’s Open Market Committee held rates at 2%. The committee is made up of six members and all but one agreed to leave its key rate where it stood. The prime lending rate for consumers and businesses remained at 5%. The prime rate pertains to certain credit cards and home/ business equity lines of credit.

These Fed meetings are always made out to be so dramactic but we all knew that the Fed would leave rates unchanged. Everybody talks about “what the Fed says in its statement” will be key but the bottom line is if the Fed would have raised rates, it could have been a haymaker that the market would not have seen coming. With rising unemployment, a shaky economic oulook on growth, and higher inflation, the Fed really had no choice but to leave things they way they are. The next Fed meeting is scheduled for September 16 and I don’t expect them to raise rates then either. In fact, I would expect them to remain unchanged through the rest of this year.

With the Fed report out of the way and a continuing decline in oil, the Dow rallied another 100+ points after the Fed meeting. At the end of the day the Dow was up 331 points to 11,615. The Nasdaq followed suit with a 2.81% increase, or 64 points, to close at 2,349. The S&P 500 was up nearly 36 points and finished the trading session at 1,284. Oil traded as low as $118 a barrel before settling at $119.17, down $2.24.

The market volatility will continue and to be quite frank, don’t let it scare you. Volatility is a great money-making opportunity. Today’s market is for the nimble traders, ones who can make quick decesions. The long-term buy and hold investors are out of the market and have been for quite some time now.

Today’s action was a bullish sign and for now we can ride the wave higher with some of the call positions we have open. However, the market can change direction quicker than a speeding ticket so I wouldn’t be surprised if this rally stalls. The first couple of weeks in August are historically a bullish few weeks so we may have more room to run before that happens.

Rick Rouse
Rick@OptionsMentoring.com

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