The Fed's half-point interest rate cut Tuesday is the first emergency cut by the Fed since the bear market back in 2008-9. Although this was well anticipated, the market is acting in a confused manner.
The market doesn't seem to know if the Fed's move will forestall the coronavirus problem before it expands in the U.S. or if it is an indication of panic that will use up the central bank's ammunition if more bad news unfolds.
What is particularly unusual about this situation is that there still aren't many facts about how the coronavirus will impact the U.S. There are plenty of warnings from health officials and there are many preparations. Still, there are still many people who believe it is overblown and will be quickly forgotten as just a severe case of seasonal flu.
The big risk now is that news of coronavirus outbreaks will hit and the Fed can't do anything further right away to address an emotional reaction. It may turn out that nothing much develops and all this preparation is for naught. However, does the Fed then quickly withdraw its new accommodation?
At this point, the market is still at the mercy of headline news flow. Now that the Fed has acted the psychology of the market is going to be quite different as news hits. No longer will there be confidence that the central banks can fix things if they have already acted.
In the longer term, many folks are going to worry about the pain that will come when the Fed unwinds historically low rates but that is not an issue for today. While we will hear plenty about it when the indices start ramping and challenge old highs, not even the Fed is very worried right now.
This extremely choppy action is making it very hard to do much stock-picking right now. The focus is on the direction of the indices and until that settles down it is the only game in town.