Boy it’s great to be in your inbox this morning. Phil Rosen here. I had two televisions running yesterday, with France drubbing Morocco on one screen, and Jerome Powell attempting to beat down markets on the other.
What happened in the World Cup was fairly straightforward — and the Fed’s half-point interest rate hike surprised no one — but Powell’s press conference was about as clear as the fog over Manhattan this morning.
I caught up with a veteran Fed expert to make sense of what happened and what comes next.
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1. Fed Chair Powell took an aggressive stance at the podium Wednesday, effectively saying the central bank isn’t done hiking rates.
The Fed signaled it won’t be taking its foot off the gas anytime soon with policy, but markets of late have been acting like a so-called Fed pivot is all but guaranteed.
“Powell was hawkish up and down the line,” Lundy Wright, partner and portfolio manager at Weiss Multi-Strategy Advisers, told me on a call last night. “The market’s made up its mind that a pivot is upon us, but Powell said there’s no pivot. The market doesn’t want to buy that. The market is fighting the Fed.”
Markets remained relatively flat through Powell’s speech, which Wright saw as a sign that investors are set on a narrative.
He thinks markets seem to be pricing in growing certainty for what the Fed’s path is going to look like, and that makes people more comfortable investing, which tempers volatility in stocks.
“Powell’s very hawkish comments didn’t get a very hawkish reaction from the market,” Wright maintained. “The message was reasonably expected, so you’re not seeing any outsized moves [in markets] as a result.”
Even if markets seem to think the opposite, the longtime Fed watcher said he has trouble believing the US economy can avoid a hard landing.
Powell said yesterday that unemployment still has to go up for the economy to meaningfully cool, but Wright warned that can’t happen with assets rallying and stimulating the economy.
“If markets are doing well, which would be indicative of an economy doing well, it’s difficult to imagine a business saying they’re going to fire employees.”
But the more the market ignores the Fed, the longer the Fed will have to keep monetary policy restrictive, which ultimately raises the odds of a recession.
“Markets are pretty confident that we will get inflation under control” Powell said Wednesday, adding that Fed governors aren’t considering an adjustment to the 2% inflation target. “We’re certainly highly confident we can do that.”
Gina Bolvin, President of Bolvin Wealth Management Group in Boston, said Powell revitalized recession jitters, as he did at Jackson Hole earlier this year, by dashing investors’ hopes for a Santa rally in stocks spurred by a pivot or pause in its rate hikes.
“Powell appeared as Scrooge and put coal in investors’ stockings with his hawkish tone,” Bolvin said, noting that she expects markets next year to reflect more of the same volatility 2022 featured.
What’s your reaction to the Fed’s 50-basis-point rate hike? What comes next?
Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
In other news:
J. Scott Applewhite/AP
2. US stock futures fall early Thursday following the Federal Reserve’s latest rate hike decision. Meanwhile, Tesla shares dropped as much as 2.8% after SEC filings showed Elon Musk has sold about $3.6 billion of stock in the EV maker this week. Here are the latest market moves.
3. Earnings on deck: Adobe, National Australia Bank, and more, all reporting.
4. A portfolio manager beating 95% of his peers said there’s more bad news coming for markets. Jeff Muhlenkamp said he isn’t bullish on markets, and he’s sitting on his cash for now. But these are his 10 stock picks for long-term gains and recession protection.
5. The SEC charged eight social media influencers in a $100 million stock manipulation scheme. The individuals promoted their stock picks on Twitter and Discord, the regulator said, but then would dump shares after telling followers to buy them. See which influencers the SEC accused in the announcement.
6. China has asked big banks to help stabilize the country’s bond market. Bloomberg reported that retail investors are pulling huge volumes of funds from fixed-income products, and opting for riskier assets as the economic outlook improves. Get the full details.
7. Russia overtook Iraq as the biggest oil supplier to India in November. Suppliers began diverting flows in preparation for the implementation of the price cap earlier this month. Russian barrels look set to continue to trend away from Western customers and toward Asian buyers.
8. A recession is still ahead despite slowing inflation. “We’re likely to see head-fakes like this where the market looks for a Fed pivot,” one strategist said. Experts shared three places to put your money right now as the economy takes a turn.
9. This top TD Ameritrade technical analyst said stocks have another 19% to fall before bottoming. With an economic downturn looming and investors wrongly anticipating a policy pivot, Jeff Bierman is warning against over-bullish sentiment. “People need to temper their expectations.”
Markets Insider
10. Bitcoin has held up surprisingly well in the aftermath of FTX’s implosion. According to Academy Securities strategist Peter Tchir, the token’s likely to drop to $10,000 before climbing up to $25,000. “I think we all talk about the Lehman moment, and Lehman was never a moment,” he said. “These things take weeks and months to play out.”
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.