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Fed Chair Powell Throws Cold Water on Market Sentiment
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Want the good news or the bad news first? OK, the good news: market indices reached intraday highs crossing notable thresholds — such as the Dow back up over 33K for the first time since late August — on some dovish word usage in the Fed’s monetary policy statement out early this afternoon. The Fed still rose 75 basis points (bps), as expected, but the statement acknowledged the lagging effects on the overall economy resulting from eight straight months of aggressive rate hikes.
Which brings us to the bad news: two days after Halloween, Fed Chair Jay Powell might as well have stepped up to the podium dressed as the Grim Reaper. He promptly punched a hole in any perceived dovishness from the Fed statement, instead commenting, “We still have some ways to go” in hiking rates, and that it’s “very premature to think about pausing.” This set analysts back to their slide rules — now projecting upwards of 5.00% on the Fed funds rate by this spring.
This press conference sent market indices down to session lows: the Dow fell -505 points from today’s open, -1.55%, while the S&P 500 dropped an even steeper -2.51%. The Nasdaq slipped -366 points, or -3.36% on the day as cloud-computer stocks led the markets downward. In fact, anything consumer-oriented had a very rough afternoon. Even the comparably successful Russell 2000 notched a -3.36% loss on the day.
This inference toward 5% interest rates is notably higher than the Fed’s September forecasts. And for the time being, it appears we can forget about the Fed moving to +4.5% and then pausing to see what happens. Thus, it matters hardly at all whether the Fed’s December 14th meeting will bring another 75 bps hike or 50 bps, as many (most?) analysts had been penciling in — what really matters is how fast we get to 5% (and whether something will break in the meantime).
Powell again cited a 2% inflation rate as the goal, and made mention of core Personal Consumption Expenditures (PCE) at +5.1% on the latest print. He acknowledged that the economy has already slowed significantly, particularly in the housing market and real disposable income. But he reiterated that ongoing rate hikes are appropriate in once again regaining price stability, which is the Fed’s main responsibility and the “bedrock of our economy.”
For now, price in 75 bps for December as long as economic reads are only gradually showing signs of improvement. (This would allow: if the economy starts to crumble much faster, the Fed will step in to change its policy.) Because even with a 50 bps move next month to 4.25-4.50% on Fed funds, we appear to have a date with 5.00% eventually, unless something crucial in the economy falls apart in the meantime. How lovely.
Qualcomm (QCOM - Free Report) is out with fiscal Q4 earnings after the closing bell this Hump Day, missing on its bottom line for the first time in eight years: earnings of $3.13 per share missed the Zacks consensus by 2 cents. Revenues of $11.39 billion show an improvement of +22% year over year. But a -6% drop in QCOM shares followed a drastic reduction in earnings guidance for fiscal Q1: $2.25-2.45; the Zacks consensus had been for $3.51 per share. The stock is now down more than -40% year to date.
Roku (ROKU - Free Report) is having an even worse late trading session, -17%, after its beat on top and bottom lines, but with guidance of an EBITDA loss next quarter almost 3x expectations. Negative earnings of -88 cents per share improved over the expected -$1.37, and revenues were notably stronger at $761 million versus the estimated $699 million. The company noted it expects negative revenue growth for its Player/Platforms next quarter, as macro conditions continue to pressure the consumer. Questions or comments about this article and/or its author? Click here>>
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Fed Chair Powell Throws Cold Water on Market Sentiment
Want the good news or the bad news first? OK, the good news: market indices reached intraday highs crossing notable thresholds — such as the Dow back up over 33K for the first time since late August — on some dovish word usage in the Fed’s monetary policy statement out early this afternoon. The Fed still rose 75 basis points (bps), as expected, but the statement acknowledged the lagging effects on the overall economy resulting from eight straight months of aggressive rate hikes.
Which brings us to the bad news: two days after Halloween, Fed Chair Jay Powell might as well have stepped up to the podium dressed as the Grim Reaper. He promptly punched a hole in any perceived dovishness from the Fed statement, instead commenting, “We still have some ways to go” in hiking rates, and that it’s “very premature to think about pausing.” This set analysts back to their slide rules — now projecting upwards of 5.00% on the Fed funds rate by this spring.
This press conference sent market indices down to session lows: the Dow fell -505 points from today’s open, -1.55%, while the S&P 500 dropped an even steeper -2.51%. The Nasdaq slipped -366 points, or -3.36% on the day as cloud-computer stocks led the markets downward. In fact, anything consumer-oriented had a very rough afternoon. Even the comparably successful Russell 2000 notched a -3.36% loss on the day.
This inference toward 5% interest rates is notably higher than the Fed’s September forecasts. And for the time being, it appears we can forget about the Fed moving to +4.5% and then pausing to see what happens. Thus, it matters hardly at all whether the Fed’s December 14th meeting will bring another 75 bps hike or 50 bps, as many (most?) analysts had been penciling in — what really matters is how fast we get to 5% (and whether something will break in the meantime).
Powell again cited a 2% inflation rate as the goal, and made mention of core Personal Consumption Expenditures (PCE) at +5.1% on the latest print. He acknowledged that the economy has already slowed significantly, particularly in the housing market and real disposable income. But he reiterated that ongoing rate hikes are appropriate in once again regaining price stability, which is the Fed’s main responsibility and the “bedrock of our economy.”
For now, price in 75 bps for December as long as economic reads are only gradually showing signs of improvement. (This would allow: if the economy starts to crumble much faster, the Fed will step in to change its policy.) Because even with a 50 bps move next month to 4.25-4.50% on Fed funds, we appear to have a date with 5.00% eventually, unless something crucial in the economy falls apart in the meantime. How lovely.
Qualcomm (QCOM - Free Report) is out with fiscal Q4 earnings after the closing bell this Hump Day, missing on its bottom line for the first time in eight years: earnings of $3.13 per share missed the Zacks consensus by 2 cents. Revenues of $11.39 billion show an improvement of +22% year over year. But a -6% drop in QCOM shares followed a drastic reduction in earnings guidance for fiscal Q1: $2.25-2.45; the Zacks consensus had been for $3.51 per share. The stock is now down more than -40% year to date.
Roku (ROKU - Free Report) is having an even worse late trading session, -17%, after its beat on top and bottom lines, but with guidance of an EBITDA loss next quarter almost 3x expectations. Negative earnings of -88 cents per share improved over the expected -$1.37, and revenues were notably stronger at $761 million versus the estimated $699 million. The company noted it expects negative revenue growth for its Player/Platforms next quarter, as macro conditions continue to pressure the consumer.
Questions or comments about this article and/or its author? Click here>>