Stocks started Wednesday sharply lower as traders worried the Federal Reserve is gearing up to accelerate interest rate increases, suggests Jon Markman, editor of Strategic Advantage.

The benchmark S&P 500 (SPX) traded all the way down to 4,450 before late buying saw the index close at 4,481, a loss of 1%.

Despite the firmer finish, the benchmark is now back below its 200-day moving average at 4,490. That is not great news for bulls. They should have vigorously defended that level.

That said, I’m going to give them the benefit of doubt for at least one more session based on the decline Wednesday in crude oil prices. West Texas Intermediate crude oil fell to $96.88 per barrel, the first close below the 50-day moving average since Dec. 21.

Big stock market moves are about changes in narrative. Bears are betting the Fed will raise short-term rates aggressively to quell inflation. Falling oil prices will undermine that calculus.

Bulls need to retake 4,490 on Thursday and make progress toward 4,715, the next important resistance level. Critical support for the S&P 500 is now at 4,420, the 50-day moving average.

The Upshot

The Dow Jones Industrial Average (DJI) slid 0.4% to 34,496.51, and the Nasdaq Composite (IXIC) slumped 2.2% to 13,888.82.

Consumer discretionary and technology were the steepest decliners, while utilities led the gainers.

Breadth favored decliners 3-1, and there were 606 new lows vs. 136 new highs. Big caps on the new high list included UnitedHealth Group (UNH), Johnson & Johnson (JNJ), Walmart (WMT), AbbVie (ABBV), and Eli Lilly & Company (LLY). Very defensive list again.

The US 10-Year Yield (TNX) jumped 3.4 basis points to 2.59%. West Texas Intermediate Crude Futures (CL=F) fell by $4.92 to $97.04 a barrel.

Members of the Federal Open Market Committee reached a consensus at their March meeting that they would start reducing the size of the central bank's balance sheet by $95 billion per month, minutes of the meeting Wednesday showed.

Members mostly agreed that caps would be phased in over three months or a bit longer if market conditions warrant, the minutes said. The federal funds rate in March was increased by 25 basis points, making borrowing for mortgages, bonds, and long-term debt more expensive. One or more 50 basis-point increases will likely be appropriate in future meetings, the FOMC said.

With the runoff of pandemic support, tightening monetary conditions, and the war in Ukraine pressuring commodity prices, growth will moderate this year, Patrick Harker, president of Philadelphia's Federal Reserve Bank, said Wednesday.

The US, the UK, and the European Union reportedly hit Moscow with more sanctions following widespread allegations of war crimes carried out by Russian forces in Ukraine. The US sanctions targeted Russia's largest financial institutions and several individuals tied to the Kremlin.

The International Energy Agency reportedly plans to release 120 million barrels of crude oil from reserves to help ease oil prices. The US will contribute 60 million barrels, a part of its earlier pledge to release 180 million barrels.

In company news, Tilray Brands (TLRY) unexpectedly swung to a profit in the fiscal third quarter as demand for cannabis increased. The company said a European movement to legalize adult usage should pave the way for future market opportunities. Its shares gained 3.1%.

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