The Daily Prophet: Stock Traders Surrender to a Hawkish Fed

Minutes of the Federal Reserve's Jan. 30-31 meeting released Wednesday showed that policy makers grew more positive on the economic outlook, citing “substantial underlying economic momentum.” So, of course, stocks fell. Wait -- what?

The S&P 500 Index went from being up as much as 1.16 percent shortly after the minutes were released at 2 p.m. Washington time to ending down 0.55 percent. Rather than focus on the Fed's positive comments on the economy, investors were more concerned about the prospects for a faster pace of interest-rate increases. The amount of Fed tightening priced into the overnight index swap curve for the next 12 months jumped to 74 basis points, the most since May 3, 2010, according to Bloomberg News' Matthew Boesler. There are already signs that higher borrowing costs may be starting to pinch, as existing home sales unexpectedly dropped in January to a four-month low. With the market still struggle to recover after falling 10 percent into a correction earlier this month, investors are more inclined to sell first and ask questions later than wait for evidence that the economy and corporate earnings are strong enough to withstand three -- and possibly four -- rate increases by the Fed this year.