The stock market has remained highly volatile. Contributing to the instability this week is the Federal Reserve's bungling. First they cut rates by only 25 basis points, which means that the relationship of the Fed's target rate to the 10 year T-bill. This means that member banks are effectively being "taxed" a rate higher than the market rate. The banking system can not work if you can not borrow short and lend long. The inverted Federal Funds rate essentially assures that this frozen liquidity will not be unfrozen.
Second, they announced this coordinated plan with other central banks around the world to provide some additional liquidity into the global financial system. This is not going to hurt anything, but is not going to overcome the first problem.
The Federal Reserve must, at least temporarily, "float" the Federal Funds Rate to correct the rate inversion in the market. The Fed can not set a target rate that is disconnected to the market rates.
I'm not sure the Fed is able to see past academia to the practical reality of what is happening in the real world. This is dangerous. I hope they will come to their senses soon.
Defensive stocks and high growth big tech stocks will continue to be the safest bets while we wait.
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