Fed Chair Jerome Powell confirmed concerns about higher inflation and the potential for rate hikes sooner than expected, but the market handled the news fairly well Wednesday. There was some selling, but the buying rebounded into the close. There is a little "Fed hangover" Thursday morning as the market continues to digest the news, but this is not a surprising scenario that is creating a rush for the indices.
Stocks have expected this sort of news for a while, and there has been some sloppy and choppy trading as there is rotation in and out of stocks that are more interest-rate sensitive. Financials ( (XLF) ETF), for example, had a great run-up this year but have softened over the last few weeks as the interest-rate issue has become more apparent.
Oil has been a leading group lately, and growth has been doing well for a few weeks, but as this Fed news is priced into the market, we will have to keep our eyes open for new themes and market leadership.
As I've often discussed, there are two general types of markets. There are those driven by the indices due to macro news, and there are those that are driven by stock-picking. The current focus on the Fed has created more of an index-driven environment, but now that the news is out and is being reflected in the indices, we need to watch for a return to stock-picking.
There has been a fairly good stock-picking environment recently with meme-stock trading picking up, and small-caps have outperformed, but it has been fairly narrow.
My game plan is to watch for the indices to find some support and then become more aggressive with stock-picking. I want to see less correlated selling and then some movement in individual names that have good technical patterns and favorable fundamentals.
The technical condition for the indices is still good. There is some support, and, typically, when there are some pullbacks into the Fed decision, there is a bounce fairly soon.
We have a soft open on the way, which is probably a better setup than a gap-up open.