Market Figures Out Fed No Longer Has Its Back

US stocks soared while the Fed was meeting to raise interest rates this week — though it’s not clear why that should be so since monetary tightening isn’t generally a good thing for stock prices.

In any event, it didn’t last. Over the past 48 hours the Dow is down more than 3%, with many, many individual stocks down far more.

Why the quick reversal? For one thing, that’s pretty much how it always goes. The Fed tends to aim its statements directly at traders, who are so desperate for adult supervision that they can’t help responding positively. But when the Fed goes quiet, reality once again bites, and the general trend turns negative.

That it’s happening so quickly is a sign of how different things are this time around.

The Fed is now — for the first time in adult memory for half the world’s traders and money managers — tightening rather than loosening monetary conditions. A quick look at financial history is all it takes to lead anyone with leveraged money at risk to lighten up.

Equally important — and vastly more strange when you think about it — this tightening comes at a time when major parts of the global economy are either grinding to a halt or imploding. See Torrent Of Bad News Greets Fed As It Prepares to Raise Rates for some of the disturbing events reported while the Fed was meeting.

And since then (that is, in just two days), a whole new series of similarly-scary stories have surfaced, including: