Investors Attempt to Explain the Market Reaction

The Fed finally makes a decision and the market rallies. My email box is full of questions, but my favorite following the announcement, “Please, explain this market to me!” My reply, “the inmates are running the asylum!” Without getting into all the numbers of what the Fed said, did, and said it will do going forward, it did one thing… provided clarity for the short term relative to their action with the stimulus. Enough said! That is all that matters. Everyone will go home tonight and start dissecting the data that was given in the statement and make further decisions going forward of how they will manage assets. Thus, today was a reaction to the clarity as seen today, going forward the action will be based on what others believe to be true about the Federal Reserve going forward. That is called a market and everyone likes clarity, but everyone will interpret it differently and act accordingly.

The Dow rallied 297 points to gain 1.9% for the day. That took the index to the previous highs at 16,173, which validates the bounce off support on Monday. 29 of the 30 stocks ended the day in the green with only Boeing closing lower on the day. I am not going to attempt to make any comments on the winners versus the losers today, but we will let this settle in and act accordingly versus chasing anything based on the last two hours of trading today.

The NASDAQ was the laggard on the day thanks to Apple and others that were down big early and manage to recoup some of those losses, but not all. Semiconductors have been the leader, but were up only 0.5% today. Internet (FDN) was up 1.3% and technology was up only 0.6%. This is an index to watch going forward as it has been providing the leadership.

The S&P 500 index closed at 1810 and back near the previous highs. The bounce off the 1775 support level on Monday was the start and positive data from the Fed did the rest. Do we move higher from here? Again, the belief may be higher, but we will need to see some follow through to the move today and further conviction relative to the economy going forward. Healthcare, financials and consumer were the leaders on the day… however, they were the leaders in the selling last week. All held key support and bounced, but the anguish is alive and well.

The VIX index declined after rising to 16.7 earlier in the trading day. The close was 13.8 and back below the 14 mark in just two hours. The news takes some of the anxiety out of the markets short term. The budget is progressing through the Senate and that will take emotions of that issue out of the picture. Pretty soon the market will be left to trade on its own merit and that could add some anxiety.

Tomorrow is equally important to today. Do we follow through on the upside move? Do we see some profit taking or more selling into the news? As we all take the time to digest the results, we will have to determine if the outlook is sustainable or does the Fed see things maybe investors don’t. Whatever the outcome it will take time and energy to work through the reports and determine who and what sectors are winners and what sectors are the losers. Stay tune as there will be plenty to come on this topic.