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Wall Street feels the Fed's shift in sentiment

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U.S. equities were hit by volatile trading on Wednesday after the release of surprisingly hawkish Federal Reserve meeting minutes from April rattled investors. Policymakers noted that a June interest rate hike would be appropriate should second-quarter economic data show a reacceleration of growth.

Reinforcing this stance is recent statements by Fed officials talking up the odds of one or even two rate hikes this year vs. the one-and-done Wall Street has been looking for. More sparks could come from the Fed on Thursday when New York Fed President William Dudley and Vice Chair Stanley Fischer speak.

Futures traders increased the odds of a June interest rate hike from 4 percent to 35 percent, according to TD Securities, as the Fed acknowledged that stable job gains and rebounding inflation will force the issue of policy tightening -- no matter the temper tantrum from stimulus-obsessed traders. That hike could come despite concerns about consumer spending, the "Brexit" referendum and the economic situation in China.

The April meeting's minutes were a sharp turnaround from what was considered a "dovish" policy statement from the Fed at the time. The minutes revealed that "most" officials saw a June hike as "warranted" should the economy continue to rebound. We'll know more when Fed Chair Janet Yellen speaks on June 6 ahead of the release of the May jobs report on June 10. The next Fed policy meeting will begin on June 14.

What's already clear is that the mood among many Fed officials seems to have changed in recent weeks.

No less than four officials have been out making hawkish comments this week, including San Francisco Fed President John Williams, who repeated that two or three rates hikes for the year was a reasonable assumption. Echoing that was Atlanta Fed President Dennis Lockhart. Dallas Fed President Robert Kaplan said the U.S. economy was strong enough to justify a rate hike in the "not too distant future." And on Monday, Richmond Fed President Jeffery Lacker said the case for hiking rates in June was "pretty strong."

Wednesday's trading had a very technical element to it, with the S&P 500 recovering from critical resistance near the 2,040 level but twice bouncing off the intraday volume-weighted average price. The desperation kept the S&P 500 barely in the green for 2016, with a year-to-date gain of 0.2 percent. For 2016, Nasdaq is down 5.4 percent, while the Russell 2000 small-cap index is down 2.9 percent.

The S&P 500 closed just above the 2,040 level for the ninth time in the last two months -- indicative of just how vulnerable stocks are. A breakdown from here would be violent, likely slicing right through the 2,000 level that was so important back in December, as investors realize the Fed is serious about more than one rate hike this year.

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