It was another wild ride for the stock market as investors grapple with the notion that the economy is so great it must be derailed by the Federal Reserve.
The market was a coiled spring, but you could feel the tension in the moments before the Fed released its minutes from January 30-31 meeting.
Key takeaways from the meetings:
- Expect consumer spending to continue to improve
- Tax cuts support economic growth
- See a healthy jobs market
- Mentioned the increased household wealth for those owning stocks and houses
Although the street was looking for greater guidance from the minutes with respect to probably rate hikes in 2018 the only thing for sure is there will be a 25-basis point increase at the March meeting.
As for the market’s reaction initially, the initial narrative that the Fed would be dovish sent the Dow Jones Industrial Average up 300 points. Then the ten-year yield popped to 2.95 which knocked the wheels off the rally.
Finally, there was that last-minute collapse into the closing bell as several firms including analysts from JP Morgan and BMO said the minutes were bearish suggesting investors prepare for four rate hikes.
I will say everyone should take a deep breath because the hours of trading after the Fed releases minutes is always a volatile period of guessing.
Tomorrow, we’ll get a better assessment of what the street believes the Fed will do and how much those actions could impact the market.
Recommended
One thing is for sure, after today it feels like major indices might have to re-test the lows from two weeks ago which would be a healthy test for the rally as it would certainly test the resolve and strength of current stockholders.
This morning St. Louis Federal Reserve President James Bullard said on CNBC central bankers need to be careful not to increase rates too quickly because of the restrictive effect it would have on the economy. In other words, don’t slam the breaks on a moving locomotive.
Moreover, I would add it’s even more unwise and unfair to do this after that locomotive has only begun to move out the station and gather steam.
Bullard, who is not a voting member of the FOMC, was about to stem early pre-open losses but the bias remains to the downside. I continue to be baffled at the questions surrounding new fed chair Jay Powell. He was always a dove or dovish and now some are suggesting he’s morphed into Darth Vader.
The public will hear from the man himself on February 28th when he will discuss the outlook for interest rate policy in his testimony before the House Financial Services Committee. In the interim fearmongers will have a free hand to create doubt and confusion.
Market Parameters
Key Support Points
- Dow 23,860
- S&P 2,580
- NASDAQ 6,777
I should point out one measure of market breadth was encouraging today.
- NYSE 81 new highs versus new lows
- NASDAQ 104 new highs against 55 new lows
Today’s Session
We just can’t force the issue here, but we can build and refine our potential buy list. I’m very excited and admittedly champing at the bit but there is no need to pick exact inflection points (but we are aiming for the next day).
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