Despite obvious progress toward the Fed’s goals, markets were less-than-fully prepared for the Fed’s comments that it would not continue crisis-period monetary policy indefinitely.

Last week, the major US dollar index jumped 1.8% from a 5-year low and recorded the largest weekly gain since 1H2018. The US yield curve flattened at the long end. (2-year US Treasury yields were up 11 basis points, 5-year yields +14, 30-year yields -12). Overall, credit markets were barely scathed.

Across asset classes, “inflation trades” were set back. Gold fell 6.2%, copper declined 8.4% and oil steadied. In the case of industrial metals and energy, the losses were small compared to the scope of year-to-date gains (+18% for copper).

Strong investor inflows into cyclical recovery opportunities left them vulnerable to the merest acknowledgement of a “responsible Fed.” Profit-taking and repositioning were evident already before the Fed’s meeting. The absence of long-term rate pressures helped growth/tech shares, which rose slightly.

Past performance is no guarantee of future results. Real results will vary.

Amid a complex Fed message and muddled market response, investors need to see the big picture. 1) Supply shortages that have driven inflation spikes are generally not long-term growth opportunities. 2) “Slowing the pace of Fed easing” is unlikely to cause economic collapse. 3) Central banks may “stay easy” by the standard of past decades. This does not mean they will allow inflation to accelerate without bound.

A fully reopened world economy still suggests sharp rebounds in the most COVID-19 impacted industries and regions. This suggests further gains for a narrowing subset of cyclical assets. It also suggests modestly higher interest rates.

The economy may also differ significantly from the pre COVID-19 period, with a much larger “digital” base. Investors may not want to shun enduring growth opportunities.