'The Pain Trade Is To Go Up': Why Billionaire Chamath Palihapitiya Says Jerome Powell Capitulated — And This Could Be Next

Investor Chamath Palihapitiya spoke out on the recent comments from Fed Chairman Jerome Powell and what it could mean for the economy and the stock market.

What Happened: The Fed raised rates by 0.25% last week in a continued move at bringing inflation back down to a goal of 2%. Powell said the Fed will “stay the course until the job is done.”

“We’re going to be looking carefully at the data between now and the March meeting,” Powell said.

Powell added that a slower pace of rate hikes could be coming and the Fed would make “data-dependent decisions at coming meetings.”

The market reacted favorably to the comments from Powell with the SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500, moving higher during and after the Fed meeting.

Palihapitiya saw more upside for the stock market after the recent comments from Powell.

“In December, [Powell] was extremely hawkish and he was basically like, 'Listen, we’re going to keep rates higher than you like and longer than you want,’” Palihapitiya said on a recent episode of the All-In Podcast.

“Not 35 or 40 days later, he essentially said we have two 25 basis point hikes left to go, and he’s going to try to stick the landing essentially."

Palihapitiya said during Powell's speech and press conference, his language was “very hawkish.” The investor said the reality was Powell capitulated.

“And then the market essentially said, ‘Okay, we’re at the end of this thing.’”

Related Link: Fed Chairman Jerome Powell Celebrates 5-Year Anniversary: 5 Things You Might Not Know About Him

What’s Next: The SPDR S&P 500 ETF Trust had its worst annual performance since 2008 with shares down 19.2% in 2022.

Items like macroeconomic issues, global issues and high inflation caused the stock market to trend down during the year.

“We’ve talked about this before, but the markets tend to bottom six to nine months before it’s clear that you could have done this. And so, we’re a little bit off to the races in the short term,” Palihapitiya said.

Palihapitiya said the markets could now trade similarly to the period of late 2018 to early 2019, which saw the markets and cryptocurrency trade significantly higher.

The S&P 500 was up 28.9% in 2019, which came after a decline of 6.2% in 2018. The return in 2019 was the highest since 2013 (+29.6%) and the second highest since 1997.

“At the end of 2018 — October, November, December — the markets just fell, and part of it was Powell’s going to raise rates, inflation’s getting out of control, etc.”

Palihapitiya said instead we got data from China, Powell capitulated and it was a head fake that caused the markets to rip higher.

“I think we’re about to replay a little bit of that. At least in the next 30 to 90 days, the pain trade is to go up.”

The comments from Palihapitiya were the reverse of the warning signs of the recession he previously called out in July 2022. 

SPY Price Action: The SPDR S&P 500 ETF Trust was up 1.29% to $415.19 at market close on Tuesday versus a 52-week price range of $348.11 to $462.07.

Read Next: The Market Can't Make Up Its Mind, Neither Can The Federal Reserve 

Photo: Chamath Palihapitiya via Christopher Michel, Flickr Creative Commons; Jerome Powell, Courtesy Federal Reserve