Larry Kudlow

There’s a lot of turmoil in commodity and stock markets. Last week they both got slammed. On Monday and Tuesday they rallied back. And today they got slammed again.

The heart of this story is commodities, especially gold, silver, and oil. And the dollar.

And the heart of that story is a significant shift coming in monetary policy. Quantitative easing is going to end next month when quantitative neutrality begins. It’s a significant change by the Fed. And on a de facto basis, it represents a relative tightening.

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Traders and investors are fighting like cats and dogs over the meaning of the Fed’s policy. They shouldn’t be. The handwriting is on the wall. And Bernanke’s less-accommodative stance -- what I call quantitative neutrality -- is bullish for the dollar, bearish for commodities, and is leading to a stock market sector rotation of the major groups, away from energy and raw materials and toward more defensive plays like health care, utilities, and consumer staples.

Now, strong profits provide a good backdrop for the change in Fed policy and the rotation shift in the stock market. Profits will cushion whatever stock corrections are out there.

And, let’s face it, with a zero interest-rate target and a negative real fed funds rate, the Fed will still be highly accommodative.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.