Markets

Fed Minutes Create Carnage in Markets

Yuppie Capital

What was presumably a normal day in the markets, with the S&P opening the day ~1% lower, the release of the Fed minutes at 2:00pm sent indexes in an absolute algo fest as people tried to make sense whether we were headed up, down, sideways, or in fucking circles (shoutout Wolf of Wall Street).

S&P 500, 1D

The bears came out in full force, prompting tweets such as:

https://twitter.com/RetirementRight/status/1511768213197135877

Shortly thereafter (no pun intended), shorts got humbled with an absolute melter of a rally. Albeit the rally was short lived, and the S&P closed down nearly 1% on the day, about in line with where it opened. the tech-heavy NASDAQ fared much worse, ending the day down over 2%. All else aside, that was quite possibly best case scenario seeing as how the FOMC remains adamant in their tightening scheme.

Bonds continued their sell-off during Wednesday’s trading session, extending their loss for the fourth straight day. Also just a subtle reminder that bonds are having their worst start to the year in 40 years. IT’S THE GOD DAMN SAHARA DESERT OUT HERE. WHERE IS THE LIQUIDITY? The Bloomberg Aggregate Bond Index is down nearly 7% YTD. Basically nowhere is safe right now.

iShares Core Aggregate U.S. Bond ETF, YTD

The Fed raised benchmark rates for the first time since September 2018 (we all remember how that ended), agreeing on a 25bps hike, with the usual James Bullard head shake of disapproval. James “Bull”ard has been a staunch advocate for front-loaded hikes, just to secure an obscene recessionary event which would drastically alter the economic framework (probably for the better, tbh).

The end of the easy-money era have quite literally shocked the system. Mortgage rates have gone through the roof, major indexes have ventured into correction territory, and some of my personal holdings are down over 60% from ATH’s (not anyone’s problem, but I just think it’s hilarious and encapsulates this market perfectly). But how else does the Fed navigate this situation? Is there even any instance of a “soft landing”? Either inflation goes unchecked for too long, or equity and bond markets get burnt to a crisp (not sure which one is worse, though). Pick your poison, people.