Market is screaming for a decision from the Fed

The markets got hit with an unexpected wave of macro data on Tuesday that suggest the possibility of higher rates. That prompted traders to take some money off the table.

Screaming man
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I say traders (vs. institutions) because what we did not see was a surge in volume accompanied by heavy pressure to the downside that would signal a change of heart or change of market psychology among the traditional asset manager. What we did see were longer-term buyers that took advantage of the cautious comments and the stronger-than-expected macro data reports by bidding lower and being patient. The market twice tested near-term support and held.

This came after Federal Reserve Chair Janet Yellen's comments on Friday, where she rode both sides of the fence — leaving interpretation up to individual investors. Couple that with Fed President Loretta Mester's comments over the weekend about risks to the financial markets and Vice Chairman Fischer's comments at Tel Aviv University that "the markets should not be surprised by either the timing or pace of any rate hikes" and you had the perfect recipe for a market selloff. I think the saving grace from a more volatile session were Fischer's additional comments that "the U.S. would slow any rate rise if world growth falters" when the U.S. begins the process of normalization — a process that he would argue should start sooner rather than later. Now without saying sooner or later, the implication is that Fischer is a hawk and if he had his say, the process of normalization would already have begun.

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A market down 1 percent is not any real re-pricing nor is it any reason to panic at all — in fact, I am not even sure that it qualifies as much of anything really and it certainly does not mean that it is the "beginning of the end" as many would have you believe. What I think it really says is that the market is SCREAMING for a decision by the Federal Reserve — it wants clarity and it wants some finality to the rate conversation. Once the market has a sense of clarity, then it will re-price the risk. Until then, you keep getting the ebb and flow of speculation causing increasing levels of anxiety among the paparazzi.

Remember how the stronger dollar was supposed to negatively impact first-quarter earnings? Well, that did not happen. Remember how weaker energy prices signaled a slowing U.S. and global economy? Well, apparently, that did not happen either. I suspect that as analysts and strategists dissect the data, they will come to the same conclusion: Yes, rates have to rise eventually but they are not rising anytime soon. That much is clear. The data have to keep improving over the summer in order for the Federal Reserve to justify any rate rise — no matter how small. Until then, we can all celebrate the fact that central banks around the world will continue to offer unconditional support, thus allowing only minor pullbacks as the market comes to terms with the new normal.

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Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.