Powell Set To Speak Thursday

Stocks Decline On Wednesday

Yesterday, I challenged the market by saying it really wasn’t worried about Powell’s potential hawkishness. I said if stocks were really worried, they would be down more. The market answered the bell on Wednesday by falling at the end of the trading session. The S&P 500 fell 1.11% after being up in the morning. The market ended the 10 month positive streak which was the best since 1959. It was 15 months if you include total returns.

Powell To Speak Again On Thursday

Jerome Powell will be testifying in front of the Senate banking committee on Thursday. I wouldn’t be surprise if the market interprets what he says as dovish and this two-day decline reverses. The statements made are purposely vague. The Fed is far from locking in 4 rate hikes this year. Even if Powell personally thinks the economy and inflation are strengthening, it doesn’t mean the Fed will change its initial stance.

The market has been keying off the data from the labor report which showed increased hourly wage growth in January. Heading into the year, I was focused on accelerated wage growth like the market is now because of the low unemployment rate and jobless claims. However, I have since moderated my stance after looking closer at the underemployment rate and the labor participation rate for workers ages 25-54. I think wage growth and inflation will increase this year, but it won’t meet the now overzealous projections which are causing some analysts to worry about 4 hikes this year.

The latest Fed funds futures, according to the CME Group website, show the chance of 4 hikes is 35.7%. I can’t give a prediction for the percentage chance of a rate hike this year, but I’m still expecting 3 hikes. I’m in agreement with the market, but it doesn’t feel that way when stocks decline every time the odds of 4 hikes increase slightly. The 10 year yield fell 3 basis points to 2.86%. It’s below Monday’s low. With stocks and yields declining, it’s still clear that rising yields weren’t the main driver of the correction.