We are observing an interesting test of the question about the Fed and markets. Here is the market reaction to yesterday's Fed meeting.
My own approach is to analyze economic fundamentals and pay close attention to information from all Fed sources. I have been successful in using this method. I do not think that markets are efficient in the short term. (Always nice to be on the same side as Mr. B).
Markets have been consistently more pessimistic about the economy than has the Fed. Since so many subscribe to ineffective valuation measures, they are constantly on the hunt to explain a stock rally that is fully justified by corporate earnings and relatively low risk.
The Fed pays some attention to the market reaction to their moves, as in the time after the LTCM crisis. The recent "pivot" for which many, including the pundit-in-chief, are taking credit, is an example. The Fed regards the balance sheet reduction as minor and unimportant. The market thinks it is everything. I saw this repeatedly in interviews with Fed officials.
Investors would do better to ignore the small changes in possible Fed policy. Spend your time finding stocks that do well in a solid economy with low interest rates.