By James Saft
(Reuters) – So now we will finally get to see if the stock market can stand on its own two feet.
The Federal Reserve signaled this week that an additional round of extraordinary help such as quantitative easing is probably not in our immediate future, and so far risk assets like stocks are not liking it one little bit.
Minutes from the Fed’s March meeting released on Tuesday showed a more constructive tone about the economy and, crucially, revealed that only two members of the policy-setting open market committee saw the case for more monetary stimulus. That’s a sharp change from the month before when ‘a number’ of members believed current conditions could justify additional easing. That slight chill breeze you felt was from the door slamming on any move in that direction at the Fed’s April meeting, implying that only a relapse in the economy will bring more help.
Risk markets, such as equities, have duly sold off since the news, as investors made new calculations about how much, exactly, they trust the strength of the economic recovery.
“Equities have been in a temporary sweet spot where investors have been factoring in a self-sustaining U.S. economic recovery while also anticipating the imminent institution of QE3. This is a contradiction. If the economy were indeed as strong as they say, we wouldn’t need QE3,” Charlie Minter of fund manager Comstock Partners wrote in a note to clients.