The initial reaction to the Federal Open Market Committee (FOMC) policy statement on Wednesday was quite mild, but once Federal Reserve Chairman Jerome Powell began his news conference it became clear that the Fed was more hawkish than the market anticipated. By the time Powell had finished speaking, the fed funds rate was pricing in six interest rate hikes of 0.25% over the next 13 months.
The Fed obviously is concerned about inflation and is being aggressive in dealing with it, but what surprised the market most was that Powell justified the series of rate hikes by saying there was plenty of room before there would be an impact on jobs.
In the past, the Fed has had to temper its hawkishness because of fear that it would hurt the economy. This time that doesn't seem to be a big concern, but Powell made it very clear that the Fed does not have a predetermined plan and will adjust its policy as it studies new economic data.
The market had hoped for some tempering of the hawkish view, and when that didn't happen the indexes sold off sharply with assistance from the helpful computers.
Overnight futures were down hard but had rebounded to flat about two hours before the open. After two big panic dips already this week traders were waiting to snap up some buys on weakness, but the overnight session anticipated that move.
It is still early and the main theme of the action this week is that very aggressive computer programs are pushing around the action more than usual. Stocks are moving in tandem with the algorithms, and it is making a mockery of stock picking and fundamentals.
The earnings reports from Tesla (TSLA) and Microsoft (MSFT) are helping to put a bid under the market, and there is a big report here on Thursday night from Apple (AAPL) that will be of major importance. A $1 billion buy of Netflix (NFLX) stock by fund manager Bill Ackman is helping as well.
The market is still struggling to discount the biggest shift in Fed policy since 2008-2009, and it is not an easy task. The computer algorithms are taking advantage and causing disruption and increased volatility. The increased volatility is causing much frustration, but one thing that has been clear this week is that buyers are willing to jump in when there is extreme weakness.