Right now, policy is the biggest fundamental factor driving the markets.<\/p>\n
That’s why you may have noticed that on Wednesday, Fed minutes were released, and the market started to sell off – falling 1.5% in just 90 minutes.<\/p>\n
But this move was actually uncharacteristic<\/em>.<\/p>\n Let me explain…<\/p>\n If you take every Fed minute report that ever came out, you’ll find that price reactions tend to be muted, and in the cases where they aren’t, prices quickly revert.<\/p>\n That’s because the Federal Open Market Committee (FOMC) meeting minutes simply give the market a detailed record of how the Fed came to their interest rate decision two weeks back…<\/em><\/p>\n Meaning, it basically reiterated what Jay Powell told us two weeks ago when he said that there’ll be three rate hikes on the table in 2022, the Fed would taper bond purchases, and these two policy changes may come sooner rather than later.<\/p>\n In addition, some Fed members already publicly stated that the Fed rate meeting in March will be a “live one.” So, we may actually see them raise rates in March… earlier than anticipated.<\/p>\n Overall, it may seem difficult to understand what new information was presented here…<\/p>\n That’s because there wasn’t any.<\/p>\n The market collectively knew all this was happening on December 15.<\/p>\n Markets subsequently sold off for three straight days, and things made sense.<\/p>\n That’s because since 2009 when the Fed would get loose, markets would rise… and when the Fed gets tight, markets fall.<\/p>\n And on December 15, the Fed’s decision to taper early and put three rate hikes on the table is extremely tight and extremely bearish<\/a>.<\/p>\n Especially given that a big part of the meteoric rise in asset prices over the last 18 months had everything <\/em>to do with loose Fed policy.<\/p>\n But between now and then came a seasonal phenomenon known as the Santa Claus rally<\/a>.<\/p>\n That rally led to the S&P 500 closing out the year at its all-time high, and when people see prices rising, often they assume it’ll continue.<\/p>\n Santa Claus rallies happen because of institutional reshuffling of portfolios, window dressing, back and forth tax selling and buying, and other financial factors.<\/p>\n None of this is the result of anticipation of things like rising earnings or a better macroeconomic environment.<\/p>\n But underneath the hood of this seasonal phenomenon, something else was happening.<\/p>\nMost People Simply Look at Prices, and Nothing Else<\/strong><\/h2>\n
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