It is possible that something good may come out of yesterday's sizeable drop by the Dow Jones Industrial Average - there is speculation that the Fed may step in with an emergency rate cut. The speculation included talk of intervention in order to help the U.S. dollar. At last check, the December futures contract is pricing in a 90% chance for the Federal Open Market Committee (FOMC) to drop rates by another 25 basis points to 4.25%. The February series sees a 76% chance for a move to 4% at the January 29-30 Fed meeting. At Friday's close, the February contract saw a 64% chance for a 4% rate after the January meeting. The Fed is set to release the minutes from its October meeting this afternoon, so we could know by then what action the Fed intends to take (if any).
Speculation is great, but it is just that . . . speculation. My concern is that investors are going to react to this speculation and then be let down after the Fed speaks. Imagine the sell-off that could happen should investors be disappointed. It could be ugly, but light volume could hold a drop in check.