In its monetary policy report released today, the Fed made the first over-valuation call on stocks since a report in 2000 where it made reference to excessive valuation in tech stocks. This time around it was small caps (which we’ve reduced our target allocation to by the way), social media and biotech stocks that appear to be stretched in the eyes of the Fed. Small cap stocks, relative to the rest of the market, had a rough go of it today.

While I agree that small cap valuations are stretched—and, more importantly, I don’t like them cyclically here either—please tell me traders didn’t need the Fed to tell them what history already strongly suggests! As for the valuations of social media and biotech, well, let’s just say DUH!

As for Ms. Yellen’s commentary before the Senate, she stated that if the economy picks up speed, faster than they anticipate, they’ll move up the timeline for raising interest rates. The Dow was up around 50 points, then gave up about 90 (to down 40, I think) on that comment. Please tell me traders understand that if the economy picks up some inflationary steam the Fed will indeed begin tightening. 

Today’s knee-jerk, yet moderate, moves in stocks indicate how overly-focused the market is on the Fed. That said, going forward from here (for the next few weeks anyway), the focus should shift to earnings. Which are off to a pretty good start…