The FOMC meeting minutes seemed to be the trigger for the reversal, although stocks initially rallied sharply in the first several minutes after their release, but that turned out to be a peak and the highs of the day were left in the rear-view mirror and we got the close that you see in the intraday charts above.
The minutes said there were few signs of increased wage growth, and that helped push stocks initially higher, but then everyone realized that these minutes were from a meeting before the last jobs report, which did show wage growth, so they pulled their bets down, so to speak, since the Fed's outlook may have changed since that meeting.
Their stronger growth outlook - and again this was before the last jobs report - translates into potential higher inflation and higher interest rates, and while we have seen rates move up over the last year, the market had been accustomed to near 0% rates for about 8 years before that so we may be on the cusp of a "rate tantrum", similar to the May 2013 QE "taper tantrum" when the Fed gradually reduced the money it was feeding into the economy.
The bond market struggled that year and the stock market did dip back then when QE tapering was announced, but it turned out to be a very good year for stocks, so perhaps this will be a temporary hiccup for the market.
The 10-year Treasury Yield hit a high of 2.96% yesterday, and that's a 4-year high.
The S&P 500 / C-fund ran up early but the post Fed minutes sell-off created another negative reversal day, this one an outside negative reversal, which is a little more problematic since they can tend to be trend changing. It may have just been an overreaction to the Fed, but it closed back below the key 50-day EMA and we should know soon enough when the dip buyers will be put to the test today.
The small caps / S-fund also posted a reversal day although it wasn't an outside reversal since this chart never made a higher high above Tuesday's high. It also closed back below the 50-day EMA, and now that it and the S&P 500 are back below the 50-day EMA, that puts all of the major averages in a technical disadvantage.
The Transportation Index rallied early and did close with a gain, but the 50-day EMA held again and it closed well off the highs.
The EAFE Index / I-fund was impacted by the reversal in stocks, but even more so by a major positive reversal in the dollar, which rallied after the Fed minutes were released. The TSP seemed to take that late action into consideration as the I-fund lost 0.85%.
The High Yield Corporate Bond Fund backed off again from the 50-day EMA and has come to rest on the 200-day EMA. Will it remain within the range of the 50 and 200 EMA's or will we see another breakdown? Obviously the stock market would prefer a bounce in this HYG.
The AGG (bonds / F-fund) had a rough day with yields rising. The descending channel remain firmly intact. This looks like it may be due for a relief rally, but bonds can remain in a trend like this for much longer than seems reasonable.