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Hey y’all,
Boy, we got a quick lesson in market panic yesterday, didn’t we?
Wednesday afternoon, Chairman Powell announced that the Federal Reserve fund rate would be lowered by a quarter percentage point, just as everyone expected…
But then, he hinted that there would be few rate cuts coming in 2025.
And then… this happened…
The markets raced towards one of their worst closes in ages, all because of Powell’s speech and press conference.
Now, as I write this at around 10 AM Thursday morning, it looks like we’re already stabilizing, and maybe last night was just a short term panic.
But there are a few key takeaways for me…
One thing is, I think this was a needed correction.
If the markets were pricing in 3+ rate cuts in 2025, then they were irrationally inflated. There simply is no economic data that justifies aggressive cutting at this point. In fact, even the cuts we’ve already seen are dubious from an economic perspective.
So in that sense, I think the pullback is okay…
But it does teach us a key lesson that we need to learn repeatedly: the markets are irrational and controlled by emotions.
A very predictable note of caution from Jerome Powell sparked a panicked selloff like few we’ve seen in recent years.
That’s not a rational reaction.
And that’s ok. But as a trader it’s something we need to be prepared and build up a tolerance for.
If we can handle the worst days, we can handle anything.
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
