The market started off on a negative note on Tuesday, following some pessimistic comments about the Covid variant from a couple of drug company executives. There is still a great amount of uncertainty about the Omicron variant, but the market was working to discount the problem.
Stocks would have probably continued to bounce back throughout the day, but they were caught by surprise when Fed Chair Jerome Powell was far more hawkish than many had anticipated. Many market players were looking for some dovish comments due to the possibility of economic slowing from omicron, but what they got instead was an admission by Powell that inflation was not transitory and the Fed would likely have to take some stronger action.
The market already was in poor shape, and this broadside form Powell sent it reeling. The selling was some of the worst in quite a while, with breadth running more than three-to-one negative and new 12-month highs piling up to nearly 900. The Nasdaq 100 (QQQ) finished with just four stocks in positive territory. One of them was Apple (AAPL) , with a gain of nearly 4%. Apparently, Apple is regarded as the equivalent of a money market fund by some folks these days.
There was a flurry of selling at the close, which was probably related to end-of-the-month reallocations, but one interesting aspect of the action was some slight relative strength in small caps. Biotechnology, which has been one of the worst groups this year, managed a positive intraday reversal.
One of the challenges of this market is that many stocks are already extremely oversold. The big caps still have not caught up to the downside, but they made some downside progress. The big issue in the days ahead will be whether there is some rotational action into laggards that are already decimated.
After a day like this, it is good to remember that if the market was easy, then it wouldn't be so potentially lucrative.
Have a good evening. I'll see you tomorrow.