Good Evening It looked at first as if the market was going to shrug off the Fed's release of meeting minutes. Investors pretty much knew what the minutes would read given Fed member commentary and the market was only down marginally even after the release at 2pm eastern. Then the selling started and by the close, all three indexes were down nearly a percent. It's the second day of pressure on prices and is starting to look like the correction that has been held off for so long. With margin borrowing at all-time highs, it won't take much for investors to close up leveraged positions and add to seeling pressure for a deeper drop though as we've been watching, the buy-the-dip sentiment and underlying economic factors are strong enough to keep us from more than a small correction.

Let's Talk Money!

MARKETS

	NASDAQ	14,525	- 0.89%
	S&P	4,400	- 1.07%
	DOW	34,960	- 1.08%

• Markets:  All three major indexes finished at session lows Wednesday which could translate to pressure Thursday as well. Gold retained its safe haven status, finishing flat even in the face of a stronger dollar. It was crude oil where the biggest selloff was seen with WTI falling nearly 3% to under $65 per barrel after a surprise build in gasoline stockpiles. Inventories grew by 700,000 barrels last week for the first increase in more than a month, even as oil stockpiles fell by more than 3.2 million barrels. The surprise increase has investors worried that the recent COVID surge is dampening demand for travel and the reopening bid.

BEST AND WORST SECTORS

• Sectors: All but one of the 11 stock sectors finished lower Wednesday with the Consumer Discretionary sector boosted by a 3.5% gain in Tesla, which is 13% of the index weight. Even here though, only 20 of the 63 stocks in the sector finished higher. Beyond Discretionary, only the safety of Utility stocks and the lockdown internet plays in the Communication Services sector did relatively well. The remaining eight sectors posted losses of a percent or more.
• Sector Trends: It's interesting that the Communication Services sector is providing relative safety and it's a dynamic that should hold up over the next week or two as we reach the peak of the delta variant surge. The best safety though is still likely to be found in the traditional safety stocks in Utilities, Consumer Staples and Real Estate until growth returns following the recent scare.

TOP STOCKS

• Lowe's reported a surprisingly strong earnings release, especially given the weakness we saw yesterday from Home Depot. The home improvement retailer reported earnings of $4.25 a share, up 13% from last year, on revenue of $27.5 billion. The company raised its full-year target to $92 billion in sales and committed to winning more market share on its Total Home strategy.
• The TJX Companies followed a strong release by Target yesterday to counter the argument that retail is weakening. The off-price apparel retailer reported revenue that nearly doubled from last year's quarter and noted comparable store sales would be higher by mid-teens over last year's period.
• ViacomCBS was up on news that it would partner with Comcast to launch a streaming service plan, SkyShowtime, in Europe to compete with Netflix and Disney.

Stock Market

The Most Important Voice in the Market Just Got Louder

All eyes today were on the release of the minutes to the July meeting of the Federal Open Market Committee (FOMC). While the notes came out mostly as expected, it was a fresh warning that the Fed is getting closer to removing stimulus from the economy...stimulus that is acting as the leading support to high stock prices right now.

The notes made sure to highlight that the central bank isn’t even thinking about raising interest rates yet even as members discussed cutting back on the $120 billion in monthly bond purchases. Not only do those purchases force more cash into the economy but they help to keep rates low on demand from the Fed.

The minutes point out that, “Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.” This was before the better-than-expected August jobs numbers and inflation data that continues to show pricing pressure on the economy. Unless we see a real disappointment in jobs data released in September or renewed lockdowns from COVID, the Fed will likely announce a timeline for reducing bond purchases soon.

Stocks had been weak all day and interest rates were higher in anticipation. Members of the Fed have done a good job of signalling all this so it really wasn’t a surprise but it does move us closer to the day when the Fed starts taking away the punch bowl. The party for easy money couldn’t last forever and returns for next year will likely be closer to the single-digits versus the 20%-plus we saw last year and so far in 2021. Stocks in the financials sector should do relatively well along with real estate.

Stocks

Government Goes After Drug Prices...Again

Lawmakers once again sounded the battle cry for price reform in drug prices. Health and Human Services Secretary Becerra along with members of the Senate and House of Representatives threatened legal action this week if companies refuse to negotiate lower prices. Along with negotiating Medicare repayment prices, the administration has floated grant funding for the National Institute of Health (NIH) to do its own drug development and research to compete with drug companies.

It doesn’t look like the market is taking either threat seriously but investors should be ready for more headline risk over the next year. Drug pricing is one of the few bipartisan issues and both sides will want to propose legislation ahead of midterm elections, even if that legislation has very low chances of passing.

Healthcare continues to be one of my favorite sectors for the year, outperforming the market so far in 2021. Stock prices for some of the drug makers have gotten pricey in the last few weeks as COVID cases have shot up but medical device makers still present opportunities.