The Dow suffers its first six day losing streak of the year as seesaw trading gave way to a late selloff. Once again there was no sense of panic, but the absence of buyers was magnified and selling begat selling. This is a tough stretch for the market, yet it comes at a good time if there is such a thing. Many people are still away enjoying the final days of summer and most of the big scheduled news for the month has been already released. While momentum is critical, so too are expectations.
In some ways investors bracing for the worst is a good thing but right now there is no consensus on what constitutes the "worst thing."
The Fed itself is at a crossroads, as it can't take a victory lap without announcing it's going to wind down its extraordinary accommodation and yet it has to appease Wall Street in the process. That's all a tall order when the original part of the premise is false - all this Fed printing hasn't made a dent on Main Street. Of course the problem is Ben Bernanke has already taken as many victory laps over the recovery as President Obama. Such victory laps have been premature and wasted valuable time in the process. Now the Fed Chairman has to find a way to exit with swagger that says "I'm bad" even if his successor will have orders to keep the machines on.
In the meantime the Fed has lost influence over the bond market as long lost vigilantes have returned to exhibit concern and flex muscle. I have no idea where they've been but it's clear they were going a little stir crazy and now want to push back. The explosion in the ten year bond could be a harbinger of higher inflation or increased credit risk or just an adjustment from the flight to safety trade that saw the world pile into US debt during the throes of the crisis and now feel the coast is clear and it's time to move on. This makes the September FOMC decision even more important. If it's only about the economy there will be no tapering, if it's about policy becoming irrelevant then it's time to close up shop.