On Tuesday and Wednesday, the market grappled with more hawkishness from the Fed.
Although it has been well-anticipated that a series of rate hikes are on the docket, there has been much less focus on the shrinkage of the Fed balance sheet. It now appears clear that the Fed is looking to reduce its balance sheet by about $90 billion a month or more than $1 trillion per year starting as soon as next month.
While the market has been quite aware that quantitative tightening was coming, it has not discounted it to the same degree that it has discounted rate hikes, and that is what triggered the poor action over the last couple of days.
It is important to note that the stocks that suffered the most were technology and high-growth names. These names are much more sensitive to interest rates shifts because their earnings are typically further down the road.
There are some signs Thursday morning, however, that the market is starting to believe that Fed hawkishness has been discounted to some extent. It doesn't hurt that Warren Buffett has disclosed a position in HP, Inc. (HPQ) . Like Elon Musk's interest in Twitter (TWTR) , it demonstrates that there are some good bargains out there.
To effectively navigate this market right now, it is important to focus on rotational action. There continue to be major shifts on a daily basis as energy, commodities, financials, and technology dance around to worries about interest rates, bonds, and the war in Ukraine.
I'm always focused on stock-picking, and it is good to see some increased interest in biotechnology and even some speculative SPAC-related names. There is aggressive trading taking place in secondary stocks, which doesn't happen when sentiment is too negative.
We have a quiet start Thursday morning, but some support appears to be developing, and we will see if buyers start to take advantage of some sizable pullbacks.
