Fed Reaction

Well the market sold off yesterday after the Fed pause. No surprise there. After a good start to the trading morning investors seem to have second thoughts on the double impact of rising energy costs and slowing economic growth.

Persistent interest rate hikes have had a choke hold on equity valuations for almost two years. The reason for the pause, slowing economic growth, means that the Fed feels pricing pressure will ease even without more rate hikes. A slow growth environment helps with the inflation issue but stocks will continue to be pressured if companies start to report lower than expected arnings growth.

A slowing economy has the potential to present plenty of obstacles for stock price appreciation and it will be particularly important to focus on sectors that are less susceptible to the business cycle.

Going into yesterday the market was short term overbought by my indicators so some of what we are seeing should not be all that surprising.