S&P 500 crashes as FOMC meeting minutes hint at earlier, faster rate hikes

S&P 500, Federal Reserve, FOMC, Treasury Yields – Talking Points

  • S&P 500 drops nearly 2% as Fed suggests faster tightening
  • The 10-year US Treasury soars to 1.71%, its highest level since April
  • Relatively mixed US dollar, Bitcoin and gold tumble with major indices

The S&P 500 fell sharply on Wednesday as market participants digested the latest FOMC meeting minutes, which hinted that a stricter policy may be closer than expected. The hawkish publication sparked a major rout among risk assets, with the tech-rich Nasdaq 100 index falling more than 3%. The 10-year Treasury yield jumped to 1.71%, its highest level since April. Both gold and silver fell, under pressure from rising Treasury yields. Bitcoin was also a victim of the rout, carving out a key support level at $ 45,666.

After the December FOMC meeting, markets opted for a more hawkish Fed in 2022 and beyond. Wednesday’s release of meeting minutes highlights ‘Fed put’ should be reassessed down, as committee discussed faster rate hikes and more aggressive-than-cycle balance sheet normalization previous.

The FOMC minutes also discussed the Omicron variant, but recent US economic data suggests the recovery remains resilient in the face of increasing cases. Private sector employment data for December showed the biggest increase in 7 months, underscoring the growing strength of the domestic labor market.

1 hour chart of S&P 500 Futures (ES)

Chart created with TradingView

Following the release of the minutes of the FOMC meeting, futures traders quickly factored in an 80% chance of a first Fed rate hike in March. Perhaps the most notable part of the FOMC statement was this:

“Participants generally noted that, given their individual outlook for the economy, the labor market, and inflation, it may become warranted to raise the federal funds rate earlier or at a faster rate than the participants had not planned it before.

Open recognition of a more aggressive tightening could set the stage for further short-term concerns for equity markets. Continued pressure from higher rates could lead to weakness in sparkling names, as well as large mega-capitalization tech companies that have propelled markets higher over the past 18 months. While it may take some time for the market to revise the road price in 2022, market participants should be wary of the Federal Reserve’s intention to withdraw liquidity from the markets.

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— Written by Brendan Fagan, intern

Contact Brendan, use the comments section below or @BrendanFaganFX on Twitter

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