Yellen's prepared remarks were what you would expect from a Fed chairman engaged in a rate hiking bias, even if it is just 1 hike per year pace thus far. She sees the Fed's balance sheet 'eventually much smaller' as the Fed's longer term goal is shrinking the balance sheet. Wow, that is cutting edge stuff. She notes that in upcoming meetings the FOMC will evaluate employment and inflation are evolving in a manner in line with expectations, and if so, "further adjustment of the Fed Funds Rate would be likely be appropriate." The hell you say. It would be appropriate to raise rates in a rate hiking campaign. The pure genius.
Genius or not, stocks gave up early gains and are negative while the dollar and yields are rising.
Bonds: 2.50%
EUR/USD:
SP500 -4.97, -0.21%
NASDAQ -12.43, -0.21%
DJ30 -16.02, -0.08%
SP400 -0.25%
RUTX -0.15%
SOX -0.58%
Not major losses after new highs but growth is a bit more beleaguered given it is more credit reliant than say the large cap NYSE. Foreign based stocks, read China, are under pressure and we will see if they can rebound.
SPY has dropped straight down the past 45 minutes in a steady decline. Tried to bounce after initially falling on the release of Yellen's testimony but that rolled back over.
Now they are in the Q&A and it is the usual self serving political game of making sure you can get the little snippet of commentary you can use to 'back up' your later outlandish claims about what the Fed chair said. Got to love DC. Or not.
We will see how stocks respond after this initial selloff reaction.
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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