Stocks Drop After Fed Minutes, Bonds Unchanged

Despite the warning by "some" Fed members that stocks are "quite high", and another even more implicit warning, that the Fed may have to revise its forecast if "financial markets were to experience a significant correction", the market's initial reaction to the Fed's warning was to ignore it, although in recent minutes there has been a modest acceleration to the downside across equity markets...

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... while bonds initially sold off in a kneejerk reaction to the Fed's balance sheet reduction warning, only to recoup some of the losses.

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Finally, despite the Fed's attempt to tighten financial conditions - if indeed it is worried about a bubble - so far it has failed, with the market refusing to budge in its rate hike expectations, and even after the minutes, the Fed Fund Futures market still expects at most one more hike, in September 2017.

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