Despite a steady diet of significant headlines, market action has been sedate with a slightly positive bias.
On Monday, the market shrugged off the contentious G-7 meeting, and on Tuesday, it barely blinked following the Trump-Kim summit meeting. This morning, it is digesting a major victory for Time Warner Inc. (TWX) and AT&T Inc. (T) in a battle to finalize their merger.
The big question now is whether the FOMC interest rate decision at 2 p.m. ET this afternoon will be the catalyst for a bigger move in the indices.
It is well anticipated that the Fed will hike the Federal Funds Rate by a quarter point. Currently, it is expected that there will be one more hike coming in September -- and the primary issue today will be whether expectations for another hike in December will be priced into the market.
The Fed's tone has recently turned more hawkish, as the economy has shrugged off trade war worries, unemployment has stayed at record lows and some signs of inflation have developed. Market players have taken it in stride, as economic growth has been strong enough to offset increased rates.
The bears have long anticipated that a hawkish Fed would be the cause of a major market top. That argument has been in place since the early days of quantitative easing -- but it has never taken hold. The problem for the bears is that the economy has stayed strong and offset the worries about higher rates and inflation.
In the last several years, the only time that a hawkish Fed has had any real impact on the market was in January and February 2016. The Fed took a more hawkish tone, but at the time, there were many struggles internationally, particularly in China. The market reacted very poorly to the hawkish Fed tone but eventually the central banks put together coordinated action and the market turned back up and trended higher for the next two years.
The lesson is that this market can easily handle higher rates as long as it feels confident that there is sufficient economic growth. In 2016, the market didn't agree with the Fed's argument that the U.S. economy was operating separately from the international economy -- and we saw an ugly selloff as a result.
The technical setup is much like we had yesterday into the Korean news. It is a "sell the news" situation, but this market has not seemed to easily embrace that reaction in recent years. Perhaps it is just too obvious, but if you have bet on a selloff on Fed decision day, it has been a very tough trade.
In the early going, we have a quiet stock market with some movement in "deal'" stocks after the AT&T court decision. The Nasdaq continues to lead and technology stocks are in focus. The market is not exhibiting any great worry about a more-hawkish Fed, and it looks likely the dip buyers will be ready to go if there is any severe pullback on the Fed news.
It is business as usual and the market looks ready to take the Fed in stride.