The Fed gave the market the three-quarter percentage point rate hike it was anticipating, and Fed Chief Jerome Powell did a fairly good job of restoring some confidence in the central bank's approach. The economic situation was extremely uncertain, and Powell struggled at times to communicate the various possible outcomes, but he was optimistic enough to calm some worries.
As usual, there is much scoffing at some of the predictions, but Powell made it clear that the more aggressive rate hikes may slow the economy, but the Fed still feels that a recession can be avoided. The key is that the Fed made it clear that it's intently focused on inflation and is willing to allow unemployment to rise and growth slow to bring prices under control.
Stocks had a good day with a strong breadth of around 6,550 gainers to just 1,750 losers, but that is thanks mainly to the action being index-driven. Stocks are moving together, because traders are buying index exchange-traded funds rather than focusing on individual stock picking.
The question now is whether the market can build on this positive reaction. On the last Fed day, the market had a very positive response to Powell, but it was slaughtered the next day as the market mood quickly shifted.
If buyers can provide some support Thursday, then there is a good chance that buyers will start to add some long exposure. We don't have any immediate news flow to derail a bounce, such as a consumer price index report, which may help to bring in some traders.
There is a lot of talk about the rebalancing of indexes becoming a potential catalyst. June 24 is when the Russell indexes are rebalanced, and that is typically one of the highest volume days of the year.
I'd like to see more stock picking and less index-driven action, which would indicate that fundamentals are starting to matter a little more. An oversold bounce that is mostly index driven is less likely to have staying power.
This market still has plenty of headwinds, but we may have a brief respite as it digests today's Fed decision and contemplates how oversold many stocks have become.
Have a good evening. I'll see you tomorrow.
