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Fed Kicks Investors Where it Hurts

After hitting a new high on Tuesday, stocks were having a more casual session early on Wednesday. Then at 2pm ET the Fed released minutes from their late January meetings. Next thing you know the S&P is down -1.2%.



What happened?

Even though Fed officials were optimistic about accelerated economic growth from Q4 levels, the real focus was on growing concerns with the current QE program. Meaning more members are worried about the risk/reward trade off and may want to change parameters of how long they will be engaged in QE... and how much money they will spend.

Was the stock pullback warranted?

On the one hand, a world with less QE would lead to rising rates and potentially a less attractive stock market. On the other hand, the Fed will ONLY lower their QE efforts when they think the economy is ready to stand on its own two feet. When you think about it that way, then the removal of QE should be a big vote of confidence in the state of the economy... and by extension, the stock market.

Next step for investors?

Given the length and breadth of this rally, we were all due for a little wake up call. That could have come in any form. The Fed minutes were just the most readily accessible reason to test investor convictions at this time. Likely after a day or two more of volatility the market will be back to pushing the recently made highs.

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