Last Tuesday, the Federal Reserve made an emergency rate cut, which quickly tanked markets after a brief pop higher. Now there are expectations of another rate cut as early as this month.
Traders now anticipate the Federal Reserve will cut its benchmark interest rates by three-quarters of a percentage point March, even after the reduction earlier this week.
Friday’s stock market plummets, and a new record low in government bond yields compelled traders to suggest a 65% chance of a 75 basis point cut by the March 17-18 Federal Open Market Committee meeting, according to the CME’s FedWatch tracker. This is a dramatic shift from the zero probability assigned to that massive of a cut Thursday.
If traders are correct about an additional rate cut, the federal funds rate would take the borrowing cost in short-term markets down to a range of 0.25%-0.5%, headed toward zero or even negative rates. The surprise rate cut on Tuesday placed the current target at 1%-1.25%.
According to experts, of these potential rate cuts point to one situation: a recession.
“We knew the Fed at some point if we had a recession again would get the funds rate to zero, and that is effectively being priced in,” said Mike Collins, senior portfolio manager at PGIM Fixed Income. “There’s a very good chance they cut a couple of times more, maybe get to 50, maybe get to zero at the end of this year and probably get stuck there.”
Down over 11% from its all-time high, the S&P 500 dipped into correction territory on an intraday basis along with the Dow Jones Industrial Average and Nasdaq. It took the indices just ten sessions to dive from their all-time highs, after notching record highs the prior week.
It’s not all bad news; however, as plummeting markets can provide opportunities to make money. For savvy investors with an appetite for risk, the Direxion Daily S&P 500 High Beta Bear 3X Shares (NYSEArca: HIBS) and the Direxion Daily Dow Jones Internet Bear 3X Shares (NYSEArca: WEBS) are just two of the many inverse ETFs that can be used to capitalize on falling markets.
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