Following the big drop on Tuesday, stocks struggled again, but managed to hold up fairly well, despite a negative reaction to the minutes of the last Fed meeting.
The market was in positive territory, and breadth was around 3,500 gainers to 4,600 decliners. We also saw a light increase in new 12-month lows to around 160. But the minutes of the Fed meeting were more hawkish than expected. Most notably, the minutes indicated that "several" members favored or would not oppose a bigger rate hike of a half percentage point. We already knew from recent comments that two non-voting members were leaning toward such a hike, so this was a view that was more widely held than previously known.
This is important because the data since the last meeting was hotter than expected, and the market has been pricing in more hikes and higher rates for longer. After the minutes Wednesday, it is now a near certainty that we have at least three more hikes coming, and the odds of a 0.5% hike at the next meeting are increasing.
For much of the last six weeks, the market did a great job of ignoring the hawkish hints of the Fed and unfriendly data, but there now seems to be recognition of the old adage "don't fight the Fed." The bulls are still hopeful that maybe the personal consumption expenditure data on Friday will be soft or that there will be some other data that influences the Fed, but there isn't much hope, and we are now stuck trying to price in these rate hikes and the economic fallout they will produce.
Technically the S&P 500 tested its 50-day simple moving average and held, which is a good sign, but that is probably due to being a bit oversold at this point. That 50-day support looks very precious. Each time the 50-day simple moving average was breached in 2022, there was significantly more downside.
This market has some severe headwinds to deal with and no longer how short squeeze fuel to make it easy.
Have a good evening. I'll see you tomorrow.
