On Wednesday, the market expected the Fed to confirm its recent dovish bias, but the Fed was even more dovish than expected -- and that caused some concern. After a sharp spike higher on the initial news that there would be no rate hikes at all in 2019, the indices gave back the gains as market players pondered whether the Fed is anticipating some problems that the market isn't seeing.
What causes much consternation for market pundits is that Jerome Powell continues to state that the economy is very strong and is in a good place, but then admits that there is slowing and takes action that would seem to indicate that he foresees major issues.
In addition, market players are worried that the Fed is going to run out of ammunition. It has already stopped hiking rates and is going to stop reducing its balance sheet, so the only tool they have left is rate hikes. As soon as the market sees any sizable drop, there is going to be some loud talk about another Fed rate cut.
The bears are growling this morning that a negative reaction to a dovish Fed may mark a turning point in the market. The pessimists have been frustrated by the buoyance recently and can't understand why the market isn't listing to their arguments or pulling back after becoming overbought.
In addition to the Fed not having a positive impact, the bears are also focused on growing concerns about China trade. Negotiations are scheduled to begin again next week, but there have been several signs lately that things are not going smoothly. There still is potential for some quick spikes on positive headlines, but the level of skepticism is increasing.
The market is struggling with a negative response to a dovish Fed. This is not the usual reaction --and that may be significant. We will see how trading looks later in the day. As always, let the price action be your guide rather, than the opinions of pundits.
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