The double edged sword of the Federal Reserve’s interest rate policy is rearing its ugly head this morning as investors identify the true psychological meaning of a continuation of the status quo. The persistent dovishness points to a potentially weaker economy than most market participants were hoping for, which doesn’t sound so great, even though low interest rates could continue to spur growth into year-end. 

That’s the other side of the equation.  If the Fed did raise rates, it would confirm the underlying strength that everyone already thought existed and could have led to stabilization in risk assets. Although we have been expecting the Fed to leave rates unchanged for months, the thought of further unknown has investors on edge. There is a lot on the line for the Fed to get this right, yet the one thing they may be in short supply of is credibility after nearly a year of hinting at higher rates.

Looking at the prospects for opportunity, there may still be a few silver linings. The first being larger than average discounts in closed-end funds (CEFs) as a result of fears over more expensive leverage costs. CEFs as a group have are currently trading at an average discount of over 10%, but with the Fed leaving rates unchanged, they can still amass an excellent spread between the cost of borrowed capital and high yield bond rates.

Yesterday even saw many popular funds increase in value significantly as a place to hide out and collect some yield if stocks get cheaper. Funds such as the DoubleLine Income Solutions Fund (DSL) and PIMCO Dynamic Income Fund (PDI) up until yesterday were at record breaking discounts, but still present solid opportunities for more aggressive income investors.

Secondly, I believe that if stocks continue to present volatility, they offer investors a way to expand equity holdings at relatively good prices.  If you’re an intermediate to long-term investor with some cash on hand; this is the type of market you have been waiting for.  With stocks on sale, oil prices back to trending sideways, all we have left is to get some confirming data from other global partners that this correction isn’t going to mean further growth deterioration.