Investors Gear Up for Powell Testimony Tomorrow

Federal Reserve Chairman Jerome Powell

Stocks fell all around the world today, influenced by concerns about the global economy and the path of interest rates. European markets experienced a 1% decline, which swept almost every industry.

Asian markets including Shanghai, Tokyo, Hong Kong, and Seoul also retreated, following Wall Street’s Friday selloff, while Sydney gained. The tension between the U.S. and China added to the uncertainty, even though the diplomats from both countries have agreed to cooperate on major issues.

US stocks were hit for similar reasons. Both the Dow and the S&P slipped modestly, while the Nasdaq endured another significant loss. Tech stocks were particularly wounded, with Apple and Netflix shares leading the way lower. The market’s still wrestling with the Fed’s rate hike pause, which ended Powell’s 10-month hiking streak.

But the Fed’s latest dot plot showed that two more hikes might be made this year as the Fed continues to target a 2% inflation rate. Hawkish comments from Richmond Fed President Tom Barkin and Fed Governor Christopher Waller weighed on sentiment after both Fed officials said that the Fed shouldn’t be afraid to raise rates again in the near future.

Investors are now waiting for hints about the Fed’s next steps from several Fed speakers this week, including New York Fed President John Williams, Fed Vice Chair for Supervision Michael Barr, and Fed Chairman Jerome Powell.

Both Williams and Barr will speak this afternoon while Powell will testify before Congress over the next two days. Bulls are hoping for dovish remarks.

“Markets have been overly optimistic this year and there may be an element of luck on the central bank side—keen to not underestimate inflation again, they were always going to remain hawkish as long as feasibly possible—but the data simply hasn’t justified changing course yet,” said Oanda analyst Craig Erlam.

Outside of Powell’s testimony, markets will also be watching FedEx earnings this evening. The shipping and logistics giant has long been viewed as an economic bellwether. FedEx reported better-than-expected results over the last two quarters, but the quarter prior to those saw a shockingly bad earnings print. Another strong quarter could ultimately hurt bulls, especially with Powell set to speak on the state of the economy tomorrow.


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