Friends
The Fed minutes released this afternoon indicated that the FOMC members appear to be more willing to embark on a hawkish path than even the market had anticipated. Not only is the Fed going to end the asset purchase program (quantitative easing) in the next few months, but in addition to lift off shortly thereafter (begin to raise the Fed Funds rate), the minutes indicate that the committee began to discuss the possibility of reducing the balance sheet (letting expiring bond issues run off/quantitative tightening). Now, it’s not that market participants weren’t expecting the end of QE and the beginning of lift off. The surprise today is that the Fed is either so confident in the economy or so afraid of inflation that they are even considering reducing their balance sheet.
Stocks found all of this just too much to deal with today and selling accelerated into the close. For the day, the Dow Jones Industrial Average was down 392 points to close at 36,407. The S&P 500 was down 92 points to finish the day at 4,700. The Nasdaq Composite Index was down 522 points to close at 15,100. Gold was down $4 to trade at $1,810 per ounce, while oil was up $.09 to trade at $77.06 per barrel WTI.
We still are seeing the tech heavy Nasdaq receiving the brunt of the selling pressure while more value-oriented names are holding up pretty well. For instance, Coca-Cola, Pepsi, Kroger, Walmart, General Mills, Smucker’s, Verizon and the pharmaceuticals all traded higher today. But the high-flying winners of the past couple of years, many of which have already crumbled, continue to be under selling pressure. All said, the markets were already coming to grips with a Fed that was changing course. But today’s notes indicate that the pivot might include more dramatic steps in the future. Of course, remember that I said might. The Fed will react to economic and market conditions. Predicting such conditions has not been their forte.
Have a nice evening everyone.
