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Fed Chair Powell Plays "Good Cop" on Inflation Beat

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Markets staged a turnaround midday-ish Tuesday, initially hitting their session peaks as Fed Chair Jay Powell again demonstrated he’s no longer the guy who wants to bring anguish to investors in terms of aggressively raising interest rates. At his talk today at the Economic Club of Washington, Powell expressed seeing “wage increases moderating,” and we’re now getting “closer to sustainable 2% inflation.”

After that early peak, markets spun around and struck session lows among the four main indices, before ramping up in the afternoon and closing at daily highs. The Dow, which hit -256 points at its session low, finished +268 points, +0.79%. The S&P 500 gained +1.28% on the day, while the Nasdaq easily outperformed the field, +225 points, +1.89%. The small-cap Russell 2000 came in lower that the rest, +0.72%.

Big Tech helped lead the way among sectors, helping the Nasdaq hoist higher — now +16.6% year to date, nearly double the S&P’s performance year to date. Financials also performed well on the day, with Energy the top-performing industry. It would seem the markets breathed a sigh of relief that Powell no longer appears to want to take market bullishness to task; for the second speech in as many weeks, he’s had plenty of opportunity to bash the bulls but has notably refrained from doing so.

Chipotle Mexican Grill (CMG - Free Report) posted only its third earnings miss in the past five years after today’s close, posting earnings of $8.29 per share versus the Zacks consensus $8.88. This still represents nearly +50% growth year over year, mostly on relatively significant price increases. Revenues of $2.18 billion in the quarter were light of the $2.23 billion analysts were expecting.

Same-store sales brought in +5.6% growth overall, though this underperforms the +6.9% anticipated. Operating margin was a fairly disappointing +13.6%, while margins overall were +24% — beneath the +25.1% analysts were looking for. The company expects January comps to come in at a low double-digit rate. Shares were initially down -6% on the release, but have since ebbed to -3% in late trading.

Yum China (YUMC - Free Report) also came up short in its Q4 results this afternoon, missing earnings by a penny to 13 cents per share on $2.09 billion is sales. Q4 weakness was expected, as China continues to push back its fully open marketplace once again due to Covid shutdowns. It’s Pizza Hut brand underperformed, but KFC is the company’s main business line, especially in China. Shares have given back around -1% of their +2% gains in regular trading today.

Tomorrow, we’ll hear from Fed Presidents John Williams (New York), Raphael Bostic (Atlanta) and Neel Kashkari (Minneapolis), along with Fed Vice Chair Michael Barr and Fed Governor Christopher Waller. We don’t expect anyone to deviate very noticeably from what Powell put down today, so we don’t expect much of a Fed headwind. Q4 earnings misses may tell a different story, however.

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