Stocks fluctuated after Jerome Powell signaled it’s still too soon to declare victory over inflation, while saying the Federal Reserve “will proceed carefully” on whether to raise interest rates again.
(Bloomberg) — Stocks fluctuated after Jerome Powell signaled it’s still too soon to declare victory over inflation, while saying the Federal Reserve “will proceed carefully” on whether to raise interest rates again.
The S&P 500 swung between gains and losses. The yield on 10-year Treasuries was little changed at 4.24%. The Bloomberg Dollar Spot Index rose 0.2%
Powell said the US central bank is prepared to raise interest rates further if needed and intends to keep borrowing costs high until inflation is on a convincing path toward the Fed’s 2% target. At the same time, Powell suggested the Fed could hold rates steady at its next meeting in September, as investors expected.
Comments
- Quincy Krosby at LPL Financial:
“Powell stands by his standard retort: inflation easing, but too soon to declare victory.”
- Callie Cox at eToro:
“Powell’s comments weren’t exactly new, but they struck a more serious tone. He made it clear that the job isn’t done yet. It’s worth staying vigilant in this environment while not completely giving up on risk. An aggressive Fed may not be enough to derail this bull market unless we see a recession. But in the meantime, it may be worth searching for undervalued names and investments instead of going all out on growth – especially if you’re looking for opportunity over the next few months.”
- Gus Faucher at PNC:
“Fed Chair Jerome Powell struck a hawkish tone in his speech at the annual Jackson Hole monetary policy conference. Although Powell forcefully stated the need to get inflation to 2%, he did not commit to further tightening. Instead, he said that monetary policy is currently restrictive, and that recent monetary actions are likely to slow growth further in the near term. But Powell made it clear that the FOMC will be more than willing to raise the fed funds rate later this year if inflation does not appear to be slowing or if the labor market remains too hot from the Fed’s perspective.”
- Steve Sosnick at Interactive Brokers:
“It’s what I expected – a reminder that since we’re above their inflation target, hikes remain on the table, and don’t expect cuts anytime soon. Not much new.”
Read more: Why Investors Are Wary of Exploding US Debt
- Greg McBride at Bankrate:
“There were no revelations from Fed Chair Jerome Powell’s widely anticipated speech in Jackson Hole, just a reaffirming that the Fed is squarely focused on getting inflation down to 2% and they intend to see the job through.”
- Gary Pzegeo at CIBC Private Wealth US:
“No real surprises from Jerome Powell today. It is a very different environment than a year ago when Powell saw a much larger disconnect between the Fed’s expectations and the bond markets’ pricing. Powell didn’t add much in the way of new information, but he did reiterate that the Fed will ‘keep at it until the job is done.’
“The bond market is not very convinced of another move, particularly at the September meeting. Powell said little to change market expectations in the very short-term. Beyond September, markets may have to adjust the rate outlook higher, particularly if the recent run of faster than expected growth continues to play out.”
- Neil Dutta at Renaissance Macro Research:
“I thought Powell has delivered a neutral speech. The Fed sees its monetary policy stance as restrictive and will take a more tempered approach to future meetings. Thus, I think it is quite likely that the Fed does not move in either September or November. If, and this is a big if, they deliver on the hike currently in the dots, it will be December.”
- Andrew Hunter at Capital Economics:
“Fed Chair Jerome Powell underscored the FOMC’s commitment to data dependence in his Jackson Hole speech today, but there was no suggestion that signs of economic resilience have already prompted Fed officials to revise up their rate outlook. We continue to think that a sharper-than-expected fall in core inflation will convince the Fed to cut rates significantly next year.”
The spike in the 10-year Treasury yields that has garnered much interest lately has not been violent enough to derail stocks, just as the move in two-year yields was also mild by historical standards, Ned Davis Research’s Ed Clissold said.
Yet, the longer-term picture is looking muddier, with equities now more expensive than cash for the first time since 2001 when comparing Treasury bill yields to the S&P 500’s earnings yield, as Ned Davis analysis shows. “As long as the stock market is posting double-digit gains, investors may not focus on relative valuations, but if cash continues to offer juicy yields, it could exacerbate the next equity bear market,” Clissold said.
The drop in US stocks on Thursday despite a bumper report from Nvidia Corp. shows the rally this year is “exhausted” and portends more declines to come, according to Morgan Stanley’s Michael Wilson.
“Markets top on good news and they bottom on bad news,” Wilson said in an interview on Bloomberg Radio. “I can’t think of any better news than what we got from that company,” he said, referring to Nvidia. The failed boost “is another negative technical signal that the rally is exhausted. And now we’re going to need a new story to get people excited and I don’t know what that story is.”
Corporate Highlights:
- Nordstrom Inc. dropped as analysts flagged weakening industry trends within the premium and luxury space as well as commentary on heightened credit card delinquency rates.
- Gap Inc. reported second-quarter comparable sales and revenue that missed the average analyst estimate, underscoring ongoing weakness at the retailer’s four brands.
- Marvell Technology Inc. fell after the semiconductor company gave a tepid profit outlook.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.1% as of 11:29 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0786
- The British pound fell 0.2% to $1.2574
- The Japanese yen fell 0.3% to 146.28 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $25,974.07
- Ether rose 0.2% to $1,651.95
Bonds
- The yield on 10-year Treasuries was little changed at 4.24%
- Germany’s 10-year yield advanced four basis points to 2.56%
- Britain’s 10-year yield advanced one basis point to 4.44%
Commodities
- West Texas Intermediate crude rose 0.7% to $79.64 a barrel
- Gold futures fell 0.7% to $1,934.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Namitha Jagadeesh, Sagarika Jaisinghani, Emily Graffeo and Isabelle Lee.
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