“Translated from Fedspeak, the FOMC members do not like stock market rallies, since they fear it could result in potentially inflationary consumer spending,” said Louis Navellier, president and founder of Navellier & Associates, in a Thursday note.
A line from the minutes of the central bank’s December policy meeting released Wednesday afternoon was taken as a warning to financial market participants that bets on a policy pivot in 2023 aren’t welcome. And, to the extent that equity rallies and other financial market developments loosen overall financial conditions, those wagers will only force the Fed’s policy-setting Federal Open Market Committee to prolong the pain necessary to bring down inflation.
Investors have talked of a figurative Fed put option since at least the October 1987 stock-market crash prompted the Alan Greenspan-led central bank to lower interest rates. An actual put option is a financial derivative that gives the holder the right but not the obligation to sell the underlying asset at a set level, known as the strike price, serving as an insurance policy against a market decline.
Stocks had bounced off 2022 lows set in October heading into the Fed’s Dec. 13-14 policy meeting, but soon lost traction, losing ground into the end of the month as major indexes booked their worst yearly performance since 2008. Stocks fell Thursday, with the Dow Jones Industrial Average DJIA, -1.02% ending with a loss of around 340 points, or 1%, while the S&P 500 SPX, -1.16% dropped 1.2% and the Nasdaq Composite COMP, -1.47% slumped 1.5%.
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