Wednesday was another choppy session for the S&P 500 with the index spending most of the day in the red before a late surge of buying pushed it above breakeven.
Stocks picked themselves up off of the intraday lows after the Fed’s meeting minutes revealed they still planned on a March rate hike. While this was consistent with previous Fed statements, some investors were relieved the minutes did not contain even more hawkish undertones.
While that explanation sounds plausible, the real truth is everyone who fears interest rate hikes has been abandoning ship since early January. And after six weeks of selling, we are running out of fearful owners that still have stocks left to sell.
At some point, everyone who wants to sell a headline will have gotten out. And all of those fearful sellers were replaced by buyers demonstrating an indifference to those same headlines when they bought despite them. And that is the magic point when those headlines stop mattering.
Six weeks is a long time and stocks have long since stopped falling on these same recycled “rate hike” headlines. That means it is safe to assume those headlines are priced-in and we no longer need to worry about more of the same. When the market doesn’t care, we don’t care.
No doubt headlines can get worse and the Fed can blindside the market with a more aggressive rate-hike schedule. But as long as the Fed sticks to their original plan, the worst of the selling is already behind us.
As for Wednesday’s price action, this was a bullish reversal. An opening gap lower failed to attract follow-on selling and prices closed the gap and finished just above breakeven. Bears had the perfect opportunity to break this rebound and they blew it.
If this market was truly overbought and vulnerable, prices would have fallen by now. A market that refuses to go down will eventually go up. That means January’s bounce is alive and well. Plan your trades accordingly.
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