Wednesday's Market Minute: Is Powell Really This Soft?

Speak harshly and carry a little stick. That’s Fed Chair Jerome Powell’s plan for Wednesday, according to investor consensus.

How do we know that’s consensus? Because stocks are ripping higher past resistance and trying to break out despite the fact the Fed has explicitly said on several occasions that if asset prices are too high, it could disrupt their efforts to tame inflation. So either bulls don’t believe the Fed is ready to actually formulate policy based on stock prices, or they don’t believe Powell is serious about pressing the brake until inflation gets below the Fed’s target of 2% – because we’re nowhere close to it, even if the rate is slowing.

A few months ago, when the stock rally was limited to profitable and proven dividend-payers trending higher, it might have been fair to say the market was expressing a more sophisticated outlook on which companies can withstand inclement economic conditions. Not anymore. In the past week, crypto coins and unprofitable growth stocks reached momentum levels unseen in more than a year. Homebuilders are trading near 52-week highs, an incredible turnaround for a sector closely tied to rates.

General Motors (GM) and Ford (F) have been putting in higher-lows on their charts since July. If the point of hiking rates is to lower inflation by dampening demand, what has Powell accomplished if stocks behind the highest-priced items consumers can purchase are trending higher? If Powell actually wants to get inflation under 2% as fast as possible, this suggests the economy has room to give.

Everyone expects Powell to deliver the smallest interest-rate hike yet, then talk up a big game about how things might change “depending on the data.” The economic data say inflation is still too high. The stock charts say we can take the punches. But investors are saying Powell will do exactly what they say he will, as they prescribe, and so they’re gambling on the garbage again in hopes the house will lighten up. Is that really how it works?

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

Image sourced from Shutterstock