Many market participants hoped for an aggressively hawkish Fed on Wednesday. The thinking was that the Fed was behind the curve and that if it raised rates by three-quarters of a point or more it would show that it is back in control and would be in a better position to slow inflation.
Fed Chairman Jerome Powell gave the market what it wanted and had a rather positive and upbeat news conference. Powell made it clear that there is still tremendous uncertainty and that a more aggressive Fed may cause some negative economic repercussions, but the market reacted favorably at first.
However, sentiment shifted sharply overnight as it became clear that there still are substantial rate hikes on the horizon and that the danger of a recession is building. The biggest problem is that higher rates may slow the economy but still be ineffective against inflation, which is being caused in part by supply chain problems and other structural issues.
Some market players hoped that sentiment was negative enough to deliver an oversold bounce when the bad news was digested, but it is very easy to overlook that there still are a tremendous amount of market players who are just realizing that this is a full-blown bear market.
Ever since 2008-2009 traders have had the support of the Fed every time there was a market pullback. This may be the first time in history that we have had such an aggressively hawkish Fed at the same time that a very ugly bear market is developing. Typically, the Fed has started hiking rates when the market is trending upward and is in pretty good shape technically.
The problem is that without a dovish Fed the market just doesn't have the liquidity to sustain a bounce. There will be counter-trend moves as conditions become oversold, but the Fed not only is raising rates but it has started quantitative tightening as well. The cash to sustain a move in the market just isn't there right now.
If you are looking for a positive, the best thing about this market is that so many individual stocks are already down substantial. The bear market in the S&P 500 is fairly new, but for the majority of stocks the bear market has been going for over a year now. Those stocks are still struggling to find support, but they are closer to the bottom than the indexes might be.
We'll see if there are any brave dip buyers here on Thursday morning, but I suspect that they are extremely short term and will be looking to take quick profits into minor strength.
The charts are in terrible shape, and if you have a longer-term time frame there is no reason to do any buying right now.
