After a day of rest on Tuesday, market participants are looking ahead to the next potential market catalyst. There are several issues on deck that are likely to determine the next significant move for the indices.
Following solid employment numbers last Friday and some other favorable reports about retail sales, confidence is building that the economy is on track for a robust reopening. Vaccines continue to roll out quickly in the U.S. as hospitalizations and deaths are declining. Europe, Canada, Brazil, and other countries are still struggling with COVID, but there is little doubt it is on the downtrend in the U.S.
The biggest potential obstacle the market faces right now is higher interest rates and inflationary fears. The Federal Reserve will release the minutes of its last meeting at 2 p.m. ET here on Wednesday, and that should provide some insight into what Fed Chairman Jerome Powell has indicated.
The view of the Fed has been that inflation and interest rates will pick up in the short term as the economy returns to normal and may even overshoot to the upside, but this is transitory, and inflation will slow as the economy returns to a sustainable trend. Powell and his cohorts have indicated their lack of concern about inflation, but the market is skeptical. The Fed minutes may be a catalyst for some reaction to inflation concerns again.
Another issue that is fast approach is the first-quarter earnings season. Inflation is less of a concern if companies are producing real growth. They can handle higher interest rates and lower multiples if they have better earnings growth. It is likely that there is going to be some upbeat guidance and optimism as earnings season begins in earnest in about two weeks.
For now, the market is in wait-and-see mode. It is consolidating some very good gains and developing a better technical picture for a potential thrust higher. While the overall action is not bad, there has been a sharp drop in speculative stock picking. The hot pockets of momentum just aren't operating right now. The market can move higher on the backs of the FATMAAN stocks and some other more conservative sectors, but without the speculative themes and social media hype there will be less energy and more sedate sentiment. That isn't a bad thing, but it makes for a different type of market.
We have a slow start in the very early going. Bitcoin is under pressure again, which illustrated how some of the speculative trading has slowed.