Stocks reversed sharply on Wednesday following the Federal Open Market Committee's interest rate decision and press conference by Federal Reserve Chairman Jerome Powell. As expected, the Fed raised rates a quarter point and removed the "accommodation" language from its policy statement. The market knew this news was coming, but equities nonetheless sold off and bonds rallied on the news.
One catalyst for the reversal was comments by Powell that the certain asset prices "look toppy." His comments about the strength of the economy and his lack of concern about inflation and trade wars sounded bullish, but the sell programs took hold and sent the indices down.
It is important to understand the Fed interest rate decision often is used as a catalyst for certain trades. It doesn't matter much what the news might be. For a variety of reasons the computer programs were inclined to hit the sell button, and once the reversal started it fed on itself.
The fact that this is the last week of the third quarter and the seasonally weakest week of the year had a huge impact on the way the computer programs are moving the market action. It has little to do with headlines or technical setups. News events are catalysts that trigger volatility and pre-programmed trades.
That trade is now over and there is no follow-through this morning. Overseas market reacted to what happened in the U.S. and to some negative comments by President Trump about China, but U.S. indices are mixed this morning and are looking ahead to the next catalyst.
Much of the market will be distracted today by the Brett Kavanaugh Supreme Court confirmation hearing, which now is buried in a variety of claims that the news media would never have bothered reporting in the past. There is unlikely to be any major market reaction to this hearing today, but it may have some repercussions for the midterm election that quickly is approaching.
Overall the market remains in an uptrend and there is no reason to believe a big turn is about to occur. Stock picking has narrowed, but the strength in the FAANG names is likely to keep the Nasdaq leading.
Apple Inc. (AAPL) was given initial coverage this morning by J.P. Morgan with an "overweight"' rating and a hefty price target of $272. That smells like some end-of-the-quarter window dressing that will help out institutional clients with some added performance. It is also likely to help keep the indices up into the start of the fourth quarter. Apple is trading up around $3.25, or 1.5%, in premarket trading.