Fed cuts interest rates on coronavirus threat.

Today the US Central Bank, the Federal Reserve, has announced a 0.5% cut in interest rates, in response to the Covid-19 outbreak.

This brings up an interesting point. Nobody believes that this will cure the virus.

However, the larger point is that lower interest rates, might help markets medium-term valuations in stock markets.

One of the reasons for the present bull market, is savers can’t get good returns leaving cash in the bank.

To the contrary, in most locations, they lose to inflation, keeping money in the bank.

With US interest rates falling back towards 0%, from the previous 2%, fewer people might decide to keep money in bank accounts.

This is by no means a prediction. As frequent readers know, I have said on countless occasions, that nobody can predict stock market movements short-term.

Who could have predicted that stocks would have panicked on Trump’s election night, only to have gone higher barley a few hours later?

Who could have predicted that markets would hit record highs just 6-8 days ago, only to fall 12% last week, and rise 5% yesterday in the US?

Who could have predicted that US Markets would go down slightly today, despite the interest rate cut?

Who predicted that US Stock Markets would go up by 28% last year, when they started the year in bad shape?

I don’t know of one single person, me included, that predicted all these things.

So as always the best advice is:

  • To stay calm
  • Invest every month regardless of whether markets are going up or down
  • Have stocks and bonds. Rebalance if needed if one portion falls.
  • Don’t try to predict where markets will go tomorrow, next week or even next year. Just be long-term

Further Reading

How have markets reacted to previous virus’?

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