The markets got the two things they wanted most from the Fed: a reiteration that it would be "patient" raising rates and that, if necessary, it would make changes in unwinding its balance sheet. It seems to be signaling the balance sheet will be much larger than anticipated.
Never mind the Fed did not change its economic outlook. "The Fed has not changed what it is doing," Bannockburn's Marc Chandler wrote. "It has changed its rhetoric."
Regardless, Chairman Jerome Powell's "rhetoric" was good for more than 20 points on the S&P 500, which was above 2,680 in Thursday's premarket.
That's the good news. Here's the bad news: The market is looking very pricey.
The S&P has punched through its recent trading range and is now at the highest level since Dec. 6. It's pricing in an awful lot of good news, not just a dovish Fed but a positive outcome on trade talks and the continuation of downward trending but overall still positive earnings.
Right now the S&P is trading at nearly 16 times 2019 earnings. While the S&P traded at 17 and even 18 times forward earnings at several times last year, there were expectations of 10 percent earnings growth for 2019 at that time.
Those estimates are long gone. Current estimates for 2019 earnings growth stand at 5.3 percent, according to Refinitiv, and many analysts expect no earnings growth, or even an earnings recession (two consecutive quarters of negative earnings growth).
A 2019 multiple of 16 is a pretty pricey market with earnings growth expectations for this year ranging from zero to 5 percent.
In an environment with a lot of positives priced in and very limited earnings growth, the higher the market goes, the tougher it is to be bullish.
"The market is likely to be dead money in the next few months," according to Alec Young, managing director of global markets research at FTSE Russell. "How are you going to get the S&P through 2,900 unless you can get earnings up a lot more?"
One final point: Just because Powell says the Fed will be "patient" doesn't mean the Fed is done raising rates, Young told me. "If a China trade deal gets done, there is a real chance you could get a more hawkish Fed," he said.