Wednesday's Market Minute: Good Luck, Mr. Powell

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As of Monday, the Nasdaq is officially in a bear market. The Russell 2000 has been there for a month, but it also hasn't gotten any worse during that month. At this point, I think most people would be happy with a sideways market.

It's been a treacherous month of faded rallies in big tech, and it only looks like the trend is tightening its grasp. If something doesn't change very soon, carnage awaits. Hope springs eternal somewhat in bitcoin, which has managed to put in higher lows as the Nasdaq has been making new ones, but it, too, has failed to live up to almost every expectation – both inflationary and political.

The situation in Ukraine is adding to the malaise, but there are signs in the past few sessions in crude oil that perhaps the market is trying to sniff out a light at the end of that subterranean failure of humanity that is Russia's attempt to provoke the world. On top of all of that, throw in a shocking resurgence of the virus at its Chinese birthplace as another colossal failure of leadership that now threatens to unseat a new and fragile comfortability with COVID in the western world.

But even with all those things to worry about, they are in sum less important to the S&P 500 Index than the choices made by Jerome Powell at the Federal Reserve. The evidence for the power of the central bank’s policy has become all but incontrovertible during COVID, an obvious truth to even the most layman observer of markets these last three years. The Meme Stonk era will be remembered with a caliber of disbelief by future generations that is impossible to comprehend by those living in the moment.

Inflation-driven turbulence is rapidly sucking the air out of that bubble. The debut of the Nasdaq-100 bear market on the week of the Fed’s inaugural post-COVID interest-rate hike is not a coincidence.

Powell's job right now is being made unnecessarily complicated by far more avoidable errors by ostensibly bigger leaders on the global stage, but the Fed Chair is not faultless either. His central bank cut rates in 2019 with the loosest financial conditions for a cut on record, and now he will be hiking into the highest VIX for a rate-hike ever. One of these, if not both, is likely a mistake. 

I admire Powell. He has an extraordinary poker face. But it’s working against him these last six months. I’ve been warning readers since Vice Chair Clarida’s hawkish comments sent the U.S. dollar rallying last June that tapering and hikes were coming quickly. Powell & Co.’s implicit embrace of the flattening yield curve the past nine months was the key tell that they would be ready to unwind COVID policy faster than they originally implied. But their shift was too subtle, and many still expect the Fed to cater its policy to traders facing losses in the stock market. To them: give me a break. 

To Mr. Powell: I sincerely wish you good luck.

Image sourced from Flickr

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.