FOMC minutes didn't reveal fresh hawkish tunes, but markets were caught off guard – unlike three weeks ago during the statement and press conference. It‘s as if the S&P 500 and pretty much everything else woke up to the hawkish reality just now. In spite of the new liquidity-powered Santa Claus rally, the sudden realization that the March Fed meeting might very well bring in a first rate hike forced a sharp downturn across the board.

The dollar wasn't too affected by the daily rise in yields that hit junk bonds particularly hard. The yield curve keeps being compressed, and is getting closer to the point of inversion.

The likely good employment data on Friday would provide the Fed with a convenient cover to embark on and keep pursuing the tightening route. Not that it would have the power to break inflation (even at the professed accelerated tapering pace – let alone the relatively measly hikes when CPI, PPI, or PCE deflator are considered) – this game of chicken with the markets risks a tantrum that could bring up the "fond memories“ of December 2018.

Yes, the risks of crashing the airplane would grow over the coming weeks and months – the Fed is walking a very tight rope indeed. Markets are spooked, and the coming days will show whether this is already the start of something worse, or whether we can still shake it off and continue upwards till the Olympics. I‘m still leaning towards the latter.

Anyway, it would be good to have closed the profitable S&P 500 and crude oil positions in time. Let‘s move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 and Nasdaq Outlook

Tech understandably declined more than value – thanks to yields. The S&P 500 bottom might not yet be priced in, bonds and tech need to stabilize first.

Credit Markets

HYG is still holding the key, and would provide an early turnaround sign. The plunge in LQD isn't looking encouraging for the short-term in the least – the dust hasn't even settled yet.

Gold, Silver, and Miners

Gold and silver still haven‘t left the sideways consolidation pattern – the white metal would be more affected with the inflation-taming fears. That‘s a premature calculation though, as inflation might turn out less amenable to be put down fast.

Crude Oil

Unlike practically everything else, crude oil recovered strongly from the FOMC-induced setback, and it certainly looks like the strongest of the pack at the moment.

Copper

Copper gave up advantageous position, and it isn't really following (energy-led) commodities up yet. The long sideways consolidation is testing the bulls' resolve even as the pressure to go higher is building up. The same is true for silver, by the way.

Bitcoin and Ethereum

Bitcoin (BITCOMP) and Ethereum (ETH-X) clearly lost the remainder of the bullish posture – it‘s turning out they aren't ready to defy the shrinking global liquidity.

Summary

S&P 500 bulls may look to get under some more pressure before the repeated hawkish message gets absorbed. The bond markets, coupled with the dollar, could reveal just how serious the bulls are about buying this dip and now. My bet is that they will remain shaken, and look hesitantly for a floor.

If there is one overarching message from yesterday, it‘s that the hawkish Fed appreciation has been woefully misapprehended, and if followed through on in its entirety, would lead to a dangerous game of chicken with the markets (we aren't there quite yet).