S&P 500 Is Just 5 Points From An All-Time High

Stocks dipped after the Federal Reserve released the minutes of its July FOMC meeting. And now they’re rallying again.

At 1,986, the S&P 500 is just 5 points from an all-time intraday high.

In the minutes, Fed officials said the labour market was far from fully normal. But it also warned that job gains could nevertheless justify rate hikes sooner.

Here’s the paragraph everyone is focused on:

With respect to monetary policy over the medium run, participants generally agreed that labour market conditions and inflation had moved closer to the Committee’s longer-run objectives in recent months, and most anticipated that progress toward those goals would continue. Moreover, many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated. Indeed, some participants viewed the actual and expected progress toward the Committee’s goals as sufficient to call for a relatively prompt move toward reducing policy accommodation to avoid overshooting the Committee’s unemployment and inflation objectives over the medium term.

The concern for market participants is that the Fed will tighen monetary policy in the form of rate hikes sooner than later. The idea is that if the Fed tightens, then it pulls liquidity out of the credit markets, which indirectly would pull liquidity out of the stock markets.

“Of course, most officials still believe that there is plenty of slack,” said Capital Economics’ Paul Dales on the labour market. “And the weaker news on inflation released since the meeting appears to support their view. Nonetheless, these minutes suggest that the Committee as a whole has started to shift its stance.”

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