Investors have been feasting on a post-election rally for weeks. The Dow Jones was said to be set to reach 20,000, even. But then the Federal Reserve had to show up and spoil the Christmas rally. The Fed announced that interest rates would go up 25 basis points. Matching almost, the recent move of over 60 basis points in the ten-year Treasury note.
That is apparently enough to pop the mini-bubble forming in equities in recent weeks. Of course, a sudden realization that the market is suffering from irrational exuberance could also be a culprit, if the market suddenly drops. Maybe that mega-bubble will also soon pop.
The Fed has signaled additional rate hikes in 2017. If yields on bonds go up, then earnings yields on stocks should also go up. That means that the markets are due for some serious price corrections.
Today's big surprise could also be the fact that the Fed signaled three more rate hikes in 2017.