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What now? 3 things to watch from Fed decision

Traders on the floor of the New York Stock Exchange.
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Traders on the floor of the New York Stock Exchange.

Today is Hangover Thursday for Mr. Market's disciples.

The shorts, aka the bears, were beaten into submission on Wednesday despite their cause finding support in lower economic growth projections from the Federal Reserve that may be as credible as a baby unicorn sighting.

The longs, who remembered markets always go higher with quantitative easing insemination trials occurring, were rewarded, and will likely buy more into the weekend. Through all of the hoopla one burning question exists, however: what now?

Finding the answer to that question I suspect will take a couple sessions as euphoria on a waning recovery (crazy logic, right?) that triggers electronic debits into digital bank vaults reigns supreme.

But, the Fed served the masses two reminders and one thing to pay attention to going forward:

1. Markets are the head of household

The rulebook says that Fed policy is dictated by an unfortunate dual mandate. Yet, the Fed continues to live by Street rules, a rough and tumble tactical guide that is made up on the fly as markets are a daily real-time pricing mechanism.

Yes folks, markets, bond and stock, continue to dictate Fed policy rather than this dual mandate nonsense of maximum employment and price stability.

Let's quickly examine recent examples.

(Related video: What's holding back the Fed?)

1. Bernanke drops a summer comment bomb that uproots the equity markets rally as rates become unmoored. Then, finding the errors in his communication, Fed governors are mobilized to suppress Bernanke's verbal misfires and talk down rates.

2. Bernanke basically heaves the herculean task of beginning a taper onto the shoulders of the next individual. Although showing confidence in the skillset of potential successors Janet Yellen and Donald Kohn, he acknowledges the market's power over Open Markets Committee decision-making. How could Bernanke incrementally remove accommodation following five U.S. data disappointments since August, as well as considering this simple throwback chart?


To win, do it yourself

Memo to investors both large, small, and medium: All investment bank forecasts (the top houses were w-r-o-n-g) as it pertains to Fed policy must be used as a secondary source for making buy and sell decisions for the portfolio; your own research and commonsense should take precedence.

A simple sanity check pre-Fed announcement could have been this: the August jobs report just missed and revisions were badly to the downside, and our Fed chairman is from the middle class and nicknamed "Helicopter Ben." No chance he institutes a full taper, a tiny taper, a taper light, etc.

Just because a broker dealer has a trading floor with Bloomberg terminals on the desks and extensions to "noted" economists doesn't mean there is a Batman-type line to the Federal Reserve that spews secret information. We are all generally flying blind at the moment!

Fed meddles in earnings season

Third quarter earnings warning season (emphasize "earnings warning") suddenly seems less relevant.

Muted reactions to warnings, depending on the stock moves prior to October, at this juncture appear likely given the renewed Fed commitment. How can you track whether this is a plausible logic?

Watch to see if shares of the companies (some high growth names in the mix) that fleeced investors with drearier than expected outlooks recently begin to outperform the major indices into October.

This type of reaction would be the market's way of saying QE-driven multiple expansion is more important in its mind than the other side of the investment equation—earnings fueled by supply and demand for goods and services.

By the way, the market's reaction to FedEx's dreadful U.S. volumes and reiterated guidance was an initial sign of a potentially irrelevant earnings season that spurs the usual Santa Clause rally chatter.

(Read more: What the Fed shocker means for investors)

Brian Sozzi is CEO & chief equities strategist at Belus Capital Advisors

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