Waiting For Powell To Push The Market One Way Or Another

Articles From: Briefing.com
Website: Briefing.com

By:

Chief Market Analyst

There was a broad-based rally in the stock market yesterday — and then there wasn’t. The S&P 500 hit 3,950 at its high (+1.4%) but finished the day at 3,892 (-0.1%) and stuck below its 50-day moving average (3,907).

The early rally was a carryover of Friday’s buying interest that was predicated on the notion that the Fed might not raises rates as much as feared because of weakening economic data and fading inflation. The subsequent selling was linked ostensibly to remarks from Atlanta Fed President Bostic (non-FOMC voter), who said the Fed is willing to overshoot with its rate hikes and that the Fed should hold rates at 5.00% for a long time.

Strikingly, Treasuries didn’t sell off on Mr. Bostic’s remarks and the dollar didn’t rally, which raises some doubts as to whether those remarks were truly the cause of the stock market failing to sustain its rally effort.

It is conceivable that market participants grew anxious about Fed Chair Powell throwing some cold water on the market’s rate-hike thinking when he delivers a speech at 9:00 a.m. ET today. That speech, we would add, is entitled “Central Bank Independence” and it will be given in Sweden, so we are not sure it will be the platform to rein in the market’s dovish-minded thinking related to the latest batch of data.

In any case, the market must contend with the fact that the Fed isn’t communicating yet in the fashion that the market would like it to communicate, which is to say Fed officials are still largely fighting back against the idea of a pivot to a rate-cut cycle starting this year.

The concern — or belief — in the market is that the Fed’s stubbornness in that regard is going to lead to a policy mistake that makes any setback in the U.S. economy worse than it needed to be. That is the message of a deeply inverted yield curve.

The anxiousness that took root after yesterday’s early rally effort, which had the S&P 500 up 3.7% from Friday’s low, has carried over this morning.

Currently, the S&P 500 futures are down 18 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 78 points and are trading 0.7% below fair value; and the Dow Jones Industrial Average futures are down 145 points and are trading 0.4% below fair value.

The negative tilt has been leaned on by renewed weakness in the mega-cap stocks, a Morgan Stanley downgrade of Dow component Boeing (BA) to Equal Weight from Overweight, Coinbase (COIN) announcing that it will be cutting another 20% of its workforce, and a report showing Tokyo’s Core CPI hit a 42-year high of 4.0% yr/yr in December.

Treasuries are on the weaker side of things today, too. The 2-yr note yield is up six basis points to 4.26% and the 10-yr note yield is up eight basis points to 3.60%.

Today’s start, then, won’t have the flair that yesterday’s start did. Then again, yesterday proved (again) that it’s not how you start, but how you finish that counts. 

Originally Posted January 10, 2023 – Waiting for Powell to push the market one way or another

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