Bonds Reassess Wisdom of Fed Neutrality

A day after the FOMC meeting, the euphoric haze lifted. Stocks were mixed Thursday while Treasury yields rose as the context of the Fed's change in rhetoric started to sink in. Upon second glance, Wednesday's statement leaves investors wondering if the presumed move to neutral may be about attempting to stop a runaway train headed for a major crash. The shift definitely isn't about having slain the inflation dragon.

Cutting rates "is like putting back the punch bowl," says T.J. Marta, senior fixed-income strategist at RBC Capital Markets. "It's easy money that got us into the current predicament...and the only way to keep things from spiraling out of control may be to ease a little to ameliorate the bubble bursting."

Also weighing on the market's mood was a dismal earnings warning from Motorola(MOT Quote), which sent its stock down 6.6%. The warning comes on the heels of a warning from Halliburton(HAL Quote) and lackluster outlook from FedEx(FDX Quote) earlier this week. Halliburton added 0.2% Thursday while FedEx slid 0.3%.

Warnings from such large household names do not bode well for profits. It makes you wonder if a parade of warnings is about to begin as the next reporting season approaches.

Meanwhile, Palm(PALM Quote) fell 8.8% as Motorola's weakness undermined swirling takeover talk. (After the close, Palm reported earnings that were better than expected, and its shares were recently up 1.4% in after-hours trading.)