Quantitative tightening - was essentially what the Fed addressed; however the market was taken-aback by their Minutes; and hiccuped after achieving all that we would have expected anyway for the S&P (4800+); and really this is a sort of overdue catch-down by S&P. Mega-cap-techs were the big victims.

Higher interest rates reduce the value of cash-flow and impede multiples for a variety of stocks, which also shared punishment pretty equally Wednesday. Of course the more hawkish tone is what did it; although that's been the Fed bias for some time, if anyone listened to Chairman Powell or others at the Fed.

Well we said for months; 'don't fight the tape and don't fight the Fed'. The tape has been defensive for many months; and the Fed was already talking tough.

Now there will be a plethora of criticism of the Fed; whereas this is essentially why we believed the Fed was 'in a corner' and behind the curve for months. It is uncharacteristic (haven't they learned?) to dial-in increased toughness with a rampaging pandemic; which is why the 'dot-plots' contemplate a Fed 'error'.

What's clear is that the Fed is going to be more aggressive than first said; and that is what shook the markets more than usually occurs from FOMC Minutes. At the same time so many stocks were already under pressure. If anything it's discussion of lower 'mortgage-backed securities' purchases that gets attention and reflects on the Housing market and so forth as well. Cracking fairly wide; a reflection (possibly) that the Fed wants to see Housing prices cool off a bit.

A 'tsunami' of liquidity - was key to our bullishness from nearly 2 years ago; as the Fed backstopped economic collapse teetering on an abysses edge due to 'WuFlu', just after it was officially designated as 'Sars-COV-2' aka, Covid. I note that internally the market topped months ago; and even the S&P stocks are below the levels of the preceding couple months; obscured by just a few.

That same sea of liquidity is tempered at best; tapering away forthcoming. As might be recognized in varying ways; that's both positive and negative. In the short term, liquidity supports economic growth, the surge in demand that met shortages in supply; and the preceding recovery in corporate earnings, that is likely to see some carry-forward into Q4 results; but wavering guidance. 

(There's a big typo in the chart below: I meant 'tsunami' not pastrami :) )

Liquidity also flowed into record corporate stock buybacks, which was a factor in our preceding upside calls, both in share appreciation (few shares too) and as 'indirect extra executive compensation, which invited the big insider sales.

You also had a concurrent surge in private equity, which fueled the SPAC rush into mostly premature companies going public; although once they collapse a few create interest (sometimes prematurely but at least relatively low-priced).

With all that liquidity sloshing around you got chaotic markets; some of which has been digested for about half a year now; although Senior Indexes tended to give 'an impression' of barely shy of record highs; which really isn't reality, with regard to the broad market. That's actually been an impediment to 'crash' the macro averages, as most issues are already way off earlier highs, except for a handful that the money managers (purposely we think) concentrate on.

So, while global central banks cut back on liquidity, our Government providing less, and inflationary pressures throwing multiple wrenches into decisions, it is worth considering why increasing risk-management practices got questioned. It may be worth pondering 'why' analysts pretended the market's at some sort of unsustainable high, or conversely, simply projected even higher S&P levels that made no analytical sense. But even now S&P is less than 2% of its high.

Of course we'll assess the S&P accordingly too; given there's no alternative in terms of recognizing 'that' pattern (hence why we haven't shorted S&P at all); while also keeping our wits about us, realizing S&P is not the market, which is essentially split; and split a bit more obviously than the bifurcation of last year.

In sum: We've noted already many variables that can occur that could change outcomes for the better or worse during 2022 and for that matter 2023. Every decision, especially as relates to Fed aggressiveness during the pandemic, is questionable as to wisdom, since this crisis is not really monetary policy, yet.

As a consequence, it's a matter of weighing probabilities; and the Fed states a willingness to be flexible (they sure were 3 years ago as they reversed a rapid series of rate hikes as pandemic approached); but the problem with the future of projecting the Fed's moves, is that its history hasn't been written yet; even if roughly outlined. Hence flexibility is required; and doubly so for the Fed itself.

Minutes from the Fed's last Meeting, described their plans to retreat from prior stimulus measures. Hard to determine how much weight Jay Powell puts on a rising Covid 'wave', though they sure acknowledged that. Omicron massively occurred 'after' the FOMC, so these Minutes don't answer pertinent questions; although this kind of flexibility matters; including trimming the Balance Sheet.

It was a hawkish Fed going into the Meeting; and hence the DJIA immediately of course flip-flopped lowered, while the Fed is aware that reducing Balance Sheet moves can trigger instability even abroad. I'm only surprised the market reacted as solidly as it did; since Fed thinking 'today' would likely be different if you factored-in Omicron, which the tsunami didn't have much info on it then. So I'm not surprised at 'talk of a faster pace' of reduction; but is it relevant? I have to respect it, and of course we looked to this year as 'don't fight the Fed' but realize their hawkish mentality bias predates this year by several months.