To start the day, the market was doing a very nice job of shrugging off a hotter-than-expected consumer price index report. Even though bonds were under pressure and the chances of a half-point hike were rising, market players were aggressively buying the dip, and breadth was running positive.
Around mid-day, St. Louis Fed President, James Bullard, was reported that he favored a half-point hike at the March meeting, did not oppose a surprise rate hike between meetings, and thought it likely that rates would rise a full point by July.
The market was unable to handle this level of hawkishness from a Fed member. The chances of a half-point hike at the March meeting jumped, and the selling pressure intensified. The early lows were breached, and the selling picked up into the close. There was a minor bounce at the close, but the damage had been done.
Breadth was not quite three-to-one negative, but new lows accelerated to over 400 after a few calm days. and new lows expanded.
One bright spot was that there was some relative strength in the secondary stocks that have finally bounced recently, but liquidity dried up, and many of them lost bid support into the close. The selling was not the intense algorithm-driven type that clobbered certain areas of the market a couple of weeks ago, but it was not pretty action given the promising start.
The good news is that the Fed's tightening process is accelerating, and we are going to move through this process much faster than many had thought. That is likely to produce high levels of volatility, but the market is going to be forced to discount the shifts very fast rather than languish. The market is fast discounting higher rates and a hawkish Fed, but it is not going to be an easy task.
Have a good evening. I'll see you tomorrow.
