Market Insights

The Federal Reserve turned hawkish yesterday, and reopening stocks are paying the price today.

Steelmakers, energy drillers, banks and transports lead the selling. Copper futures are down more than 8 percent this week, their biggest drop since March 2020. Corn, soybeans and lumber have also continued lower from their peaks in early May.

Bond yields are tumbling as well. They spiked between October and April as investors priced in a strong economic rebound. But they’ve trended lower since. Their continued drop today suggests investors think inflation will ease — probably because the of the Fed’s new stance.

After all, the central bank’s announcement was more hawkish than most economists expected. Policymakers not only raised their inflation forecast by a full percentage point. They also indicated interest-rate hikes will come a year earlier than expected.

Today’s price action follows a recent move back to the technology stocks that have led the market in recent years. The Nasdaq-100, for instance, hit new record highs today even as the Dow Jones Industrial Average fell to its lowest level in almost a month. The moves suggest investors are returning to the longer-term growth stories involving software, digitalization and e-commerce.

Recent economic data could also favor the trend. Initial jobless claims, retail sales and housing starts all missed estimates. Industrial reports from the New York and Philadelphia Fed came up short as well. That could keep a lid on interest rates and favor the shift back to growth stocks.

In conclusion, the market usually thinks ahead and prices in the next big thing. Recently, that meant an economic surge as businesses reopened after the pandemic. However now that the story has panned out, investors are “selling the news” and looking for the next opportunity.