Stocks, Bonds, Gold, and Oil Take a Hit after Hawkish Fed Minutes

Market Reaction to FOMC Minutes

The market took a hit early on due to a poor home sales print, record April home prices, declining traffic and reduced spending data from Target. However, it was the Federal Open Market Committee (FOMC) Minutes that triggered a significant drop due to their hawkish comments.

Those who dismiss the minutes as outdated due to the recent Consumer Price Index (CPI) and Retail Sales data should note that macro growth data has been disappointing since the last FOMC. Meanwhile, inflation macro data continues to rise, suggesting no relief from the current stagflation scenario.

Stock Market Performance

Despite a late-day rebound attempt, stocks closed in the red due to a significant amount of FedSpeak. Small Caps lagged while Nasdaq managed to rally into the close, ending unchanged. Goldman's trading desk noted a 15% increase in volumes compared to the trailing two weeks, with S&P top of book strengthening by 50%.

High-frequency demand in Tech and Discretionary names led to a 3% better buy on our floor. However, overall activity appeared extremely muted. Corporates were large buyers and Commodity Trading Advisors (CTAs) were small buyers. Traders still favored defensives over cyclicals, but both took a hit today.

Performance of Treasury Yields and the Dollar

Treasury yields were mixed, with the short-end notably lagging. This resulted in the yield curve (2s30s) becoming its most inverted since the April CPI plunge. Rate-cut expectations dropped after the Fed Minutes, indicating a hawkish sentiment.

The dollar continued its recent rebound, erasing all the post-CPI losses.

Gold and Cryptocurrencies

Gold experienced its worst day since April, while cryptocurrencies held up well. Bitcoin ETFs saw another solid net inflow, and there is further hope for the approval of Ethereum (ETH) ETFs. ETH reached $3800 and hovered just below it, while Bitcoin fluctuated around the $70,000 level.

Oil Prices

Oil prices fell back towards three-month lows, despite a crude draw. This drop sent West Texas Intermediate (WTI) back below its 100- and 200-day moving averages.

FOMC Minutes Reveal Concerns

The FOMC Minutes revealed that some Fed members were concerned that despite a 'restrictive' monetary policy, financial conditions were too easy. They are correct, and the reason for these easy financial conditions is the constant talk about a possible rate-cut and premature celebrations by The Fed for defeating inflation. Instead, they have brought stagflation back to life, with stocks at record highs.

So, what's your take on this situation? Do you think the market's reaction to the FOMC Minutes was justified? Do you agree with the Fed members' concerns about easy financial conditions? Share your thoughts and this article with your friends. And don't forget, you can sign up for the Daily Briefing, which is delivered every day at 6pm.