On May 22, the Federal Open Market Committee (FOMC) released the minutes of its April 30-May 1 meeting. That Wednesday, the S&P 500 posted its biggest decline in three weeks on worries the Federal Reserve might begin to taper its large scale asset purchases as early as June. From the intraday high to the intraday low on June 6, the S&P 500 lost roughly 5% of its value.
We are experiencing the first wave of QE tapering uncertainty. In the past couple of days, the initial shock of possible QE tapering has waned. This is partly because members of the Fed have essentially assured the market that we will not see tightening in June. As the initial fear inspired knee-jerk reaction subsides, investors begin to view the situation more as a buying opportunity than a time to run.
While a 5% pull-back is temporarily painful, it hardly constitutes a major market event. If this is as bad as it gets, this is very bullish for equities. The stock market has a way of becoming less and less reactive to the same potential set of future risks. The next time the tightening scare comes, we should expect the market move to be less.