Are stocks a bit too complacent when it comes to the Fed?
The S&P 500 soared on Wednesday's unexpectedly dovish Federal Reserve statement and projections, and the small-cap Russell 2000 actually rose to an all-time high. On Thursday, while the S&P gave back a bit of its gains, the Russell and Nasdaq rose further.
But perhaps stocks shouldn't celebrate a dovish Fed just yet.
"It was a temporary win for the bulls, but it only delayed the fight until a future date, because higher rates are most likely coming at some point," Jeff Saut of Raymond James wrote in a note to clients. The Fed is clearly watching the data, "so unless we get a meaningful economic slowdown, we seem to be progressing, step by step, toward a rate hike sometime later in the year."
For Lawrence McDonald, head of U.S. strategy with Societe Generale's macro group, the bulls have indeed become too complacent.
"Stock investors have been playing this successfully for a long time. They've been buying dips—several hundred dips have been bought, and they've been successful trades."
That's led to a troubling psychological condition in which investors will take any excuse to buy dips in the future, McDonald said.