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The Federal Reserve lowered interest rates today by a quarter of a point, or 25 basis points. Investors clearly were not impressed with this move, as stocks sold off sharply in just a few minutes time this afternoon. Before the Federal Reserve announcement stocks were higher across the board, but by the end of the day all the major indices were deeply in the red. The Dow fell 294, or 2.15%. The Nasdaq plunged lower by 67 points, or 2.45%. The broader S&P 500 index fell 38 points, or 2.53% on the day.

Many sectors had violent intraday swings to the downside after the FOMC announcement came out. Chief among these groups was the financial sector. Wells Fargo & Company (NYSE:WFC), which was about breakeven heading into the announcement, finished lower by 5.73%. Morgan Stanley (NYSE:MS), which was higher by more than 1%, finished the day down by 8.13%. Fifth Third (Nasdaq:FITB) and SunTrust Banks Inc. (NYSE:STI) fell 7.22% and 5.73% respectively as regional banks showed significant weakness today.

The basic materials group which has been extremely strong in the past couple of weeks was sharply lower today. Monsanto Company (NYSE:MON) plunged by 6.12% on the day. Alcoa Inc. (NYSE:AA) lost 4.54% as part of a weak aluminum group today. Freeport-McMoran (NYSE:FCX) fell 5.06% on slightly higher than average volume today.

Capital goods stocks were certainly not able to escape the broad-based selling today. The Boeing Company (NYSE:BA) fell by 4.25% on significantly higher than average volume. Foster Wheeler (Nasdaq:FWLT) and Fluor (NYSE:FLR) fell by 5.02% and 5.58% as the infrastructure stocks showed a lot of weakness today. Even Deere and Company (NYSE:DE), which has been one of the strongest stocks for the past few months was hurt today, down by 3.94%. 

Perhaps the group that had the most negative reaction from the FOMC announcement was the homebuilders. D.R. Horton (NYSE:DHI) fell 10.50% on strong volume today. Centex Corporation (NYSE:CTX) plunged 12.89% after being higher by almost 4% earlier in the day. KB Home (NYSE:KBH) and Lennar Corporation (NYSE:LEN) fell 11.33% and 10.52% respectively. 

What exactly caused today's massive selloff after the Federal Reserve's announcement? It was a perception among many investors that the Fed is not doing enough to stem the credit crunch and keep this economy from severe recession possibilities. The action in the fixed-income markets has suggested to many market observers that a 50 basis point cut was needed today, and investors had begun to hang their hopes on that significant move. The Fed publishes the statement on their site after the announcement so it is easily accessible for investors to view after the fact to try to discern what they are saying.

I do think that the better move today would have been for the FOMC to cut rates by 50 basis points, but I do understand their hesitation at this moment to a degree. The economy is still fairly strong overall, and much of the economic data is still proving that out. The problem is, if this credit crisis is as deep as it seems to be, the effects on the overall economy could come very quickly, and the Fed might not be able to act quickly enough to keep us out of a recession.

I do still think that the odds of a recession are less than 50%, but they did rise some today. Stocks still appear cheap on a valuation basis, but it is likely there could be some follow through selling in the coming days.

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