Even as traders expect the Fed to closely monitor the impact of its interest rate cuts and adjust its strategy aggressively to avoid a recession, stocks dropped Wednesday due to Powell’s address to Congress
The S&P 500 ended its two day rally as the Nasdaq 100 also fell. Treasuries dropped as well, with the 10-year yield sitting around 3.15%. The dollar fell, as gold gained along with other safe-haven assets.
Testifying to the Senate, Powell obliquely alluded to the fact the Fed was not on top of its game, and admitted that now it would be difficult to pull off a soft landing. Stocks were unsteady during Powell’s statements, as some investors were bothered he did not clarify the Fed’s future rate hike expectations, while other investors felt he was reassuring about watching the effects of the Fed’s rate hikes closely and adjusting policy to try to avoid triggering a recession as he tried to tame inflation.
Joe Gilbert, portfolio manager for Integrity Asset Management said, “He has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data suggesting the Fed will not be exclusively on autopilot with tightening.”
Evercore ISI’s Krishna Guha and Peter Williams wrote in a note that Powell’s speech was, “less hawkish than feared” because he did not mention his previous unconditional commitment to tackle inflation, even at the cost of higher unemployment. They continued, “The Fed monitors how the media and others respond to its communications carefully, so we doubt this omission was an accident.”
Many expect uncertainty now in the markets as investors pour over Powell’s statements, for clues to the future, as well as those of others, such as former New York Fed President Bill Dudley who has said that a recession is “inevitable” in the next 12-18 months.
Shawn Cruz, head trading strategist at TD Ameritrade, said in an interview, “No one’s going to want to come in and want to buy a market, put anything significant into the market while you’re getting this all-over-the-place volatility.”
Meanwhile the market remains skeptical of risk assets as we may be heading toward a recession. Even bitcoin appears mired at around the $20,000 level as investors try to figure out whether a recession is inevitable, or if this might be near a bottom.
