Were Markets Too Happy over the Fiscal Cliff Resolution?

Index ETFs fell slightly Thursday after the Fed released their “running out of bullets” FOMC Minutes

FOMC, Federal Reserve, FOMC MinutesIndex ETFs fell slightly Thursday, likely in reaction to the disappointing Fed FOMC minutes, which indicated that the Fed is “out of bullets” and that bond buying could stop by the end of the year.

Accordingly, the SPDR S&P 500 ETF (NYSEARCA:SPY) lost .22%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) lost .1%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) declined .5%, and the Russell 2000 Index ETF (NYSEARCA:IWM) lost .23%.  Keep in mind that the Russell 2000 Index reached an all time intra-day high of 872.28, so the Fed’s moves certainly pushed the Russell 2000 and the NYSEARCA:IWM ETF back on its heals a little bit.

So, trading day number two of lucky 2013 has come and gone, and so far we have seen an enormous rally yesterday surrounding the “resolved” fiscal cliff, and then a slight decline today after investors finally realized that the Fed is “running out of bullets.”

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Market action appears flawed to me, because markets should have dropped Wednesday, considering just how little the Fiscal Cliff Deal accomplished and how much is left to fight about in the next few months (sequestration, debt ceiling debates, etc).  Then, markets should have dropped even more today after the Fed revealed that yes, indeed the Fed is running out of bullets, and that yes, indeed, easing might stop before the end of this year…