FED Caution Unnerves Investors

The two themes that have played a dominant role in fueling our 2016 selloff have been decelerating growth in China and crude oil’s collapse. The good news is that on Tuesday, it appears as though US equity markets may have finally decoupled from China in dramatic fashion and in so doing posted a broad and comprehensive one-day rally. On Wednesday, US equity markets decoupled from crude. And though you may have thought that the result would have been a rally in equities, the opposite occurred. Crude rose on the day (+1.4%) while all major US equity indices fell, including the Dow Industrials (-1.39%). Given the dominance crude has played in equity market trading narrative, that is rather counter-intuitive turn of events. The fact is, yesterday afternoon’s selloff had nothing to do with either China or crude directly. Rather, is was really all out the FOMC and those themes indirectly.

Stocks Sink After FED Statement: Market Wrap up on YAHOO Finance The Final Round

The FOMC, through its announcement, made it clear that the certainty with which the Fed broadcasted a series of anticipated rate hikes this year may ultimately not hold up as a result of the turmoil being experienced in global markets. Though the FOMC did not officially signal a shift in outlook re rates, concern on global demand, the degree to which stimulative/accommodative monetary policy has succeeded (or not) and a sense that our own economy is not operating at target velocity all re-enforced the sense that we may see fewer rate hikes executed in a more deliberate fashion. That message yesterday dampened any embers of enthusiasm that may have been born by recent consumer confidence data, HPI data or earnings. I suspect even more troubling for investors is the abruptness with which yesterday’s message came – after a brief six weeks after the first rate hike since before the Great Recession. Frankly, it unnerved investors.

Volume on the NYSE (+9.97%) and NASDAQ (+12.16%) rose while the S&P 500 (-1.08%), Dow industrials (-1.38%) and NASDAQ (-2.18%) fell. It was a distribution day. s a result the markets attempt to rally is under pressure. Internals were solidly negative with sector leadership to the downside provided by Industrials, Technology and Energy. There was not a single sector that gained on the day.

Yesterday’s economic data did provide a constructive narrative in the early going. New home Sales – Level – SAAR rose to 544k versus expectations of 500k. The EIA report reflected another build of 8.4M versus expectations of 4.0 M. However distillates slumped by 4.1 M versus expectations of – 1.0 M. Today’s data will be headlined by Durable Goods, Weekly Jobless Claims and Pending Home Sales.