Expectations for inflation and rate hikes were increased Wednesday by the Federal Reserve, but after a bout of volatility, the indices ended up about where they were before the news was released. While there was some early nervousness that put pressure on stocks, the actual news produced the usual whipsaws before things calmed down.
It still ended up being a negative day, although none of the equity indices were down more than 1%. While breadth was around three gainers to every five decliners, there were still some pockets of speculative action, and we didn't see the sort of correlated selling that often occurs on major macro news events.
Now that the Fed has dropped the idea that inflation is transitory and will be rising in the years ahead, will the market be able to shrug off this concern and focus again on finding good stocks to buy? The fact that there are inflationary pressures is no mystery, however, to what degree is it already discounted by the market?
The good news is that bonds didn't have any major reaction to the Fed news. The 20+ Year Treasury Bond ETF (TLT) is still well off its May lows and is not in bad shape technically. Maybe interest rates are going to eventually go up, but it doesn't have any big impact right now.
With the Fed announcement now behind us, the key issue is whether the market will shift back to a focus on stock-picking rather than macro matters. The strength in the Russell 2000 ( (IWM) ETF) is positive in that regard. I expect some reverberations from this inflation news, but the desire of many market players is to move back to stock-picking rather than speculation about the Fed, inflation, and interest rates.
Have a good evening. I'll see you Thursday.