Opulently, that was confusing. There were no news items that eliminated the markets in the last 45 minutes of trading. Instead, traders appearance ofed to talk themselves into a belief that the Fed was going to be more hawkish than its own utterance seemed to indicate.
Stocks were modestly higher all day until the rsa from the Federal Reserve’s January meeting came out at 2 p.m. ET. Traders liked what they be told: The Fed said there were few signs of a broad-based increase in wage enlargement.
Traders have been worried that inflation is picking up, and that higher fees would kill the rally, so the Fed saying it’s not too worried was greeted as a positive take on board, and bond yields initially dropped.
But then it all turned. Bond earnings, which move opposite price, moved back up from forth 2.91 percent on the 10-year to over 2.95 percent. And predictably, the founder market’s rally fizzled.
What happened? It was widely noted precisely after the Fed minutes came out that this meeting occurred in the presence of the January jobs and wage report came out, which both were stronger than foresaw. The meeting also occurred before President Trump signed a new budget that confined a significant increase in deficit spending.
The bottom line is this: After sensible about it, most traders seemed to agree that if the Fed meeting had been deferred now, with all the information that’s come out since the January meeting, the main bank would sound more hawkish than it did back then.
That’s how lasting all this is changing.
In theory, gradually higher rates should not derail the recovery, a point made by J. P. Morgan in a note to clients on Wednesday. “While lifting long-term rates will ultimately become a negative for profits and multiples, we do not see present levels as a reason to de-risk and sell equities,” wrote Dubravko Lakos-Bujas, the bank’s chair of U.S. Equity Strategy.
He noted that the recent rise in rates contacts to stronger economic growth, positive earnings revisions, tax reform, and expensive government spending, all of which are positive for equities.
But traders are clearly not involved in theories. While the selloff Wednesday occurred on lighter volume than latest activity, the market decline accelerated after 3 p.m., when the S&P sank under the lows set earlier in the day.