Market Teeters on Edge of Rally as Powell’s Testimony Looms

Fed Chairman Jerome Powell

Stocks inched higher Monday morning as traders braced for a week that could determine the near-term trajectory of interest rates. The S&P 500 and Nasdaq Composite both climbed by a hair, looking to build on their record-setting performances from Friday. Meanwhile, the Dow Jones Industrial Average jumped about 0.5%, outpacing its peers in early trading.

But make no mistake – this rally is anything but certain.

The markets are walking a tightrope, and it wouldn’t take much to send them tumbling. All eyes are on Fed Chairman Jerome Powell, who’s set to deliver his semiannual testimony to Congress on Tuesday and Wednesday. His words could either ignite a furious buying spree or spark a vicious sell-off, depending on how dovish (or hawkish) he decides to be.

And that’s not all. The Consumer Price Index (CPI) data drops on Thursday, threatening to upend the market’s expectations for rate cuts. Economists are predicting a 3.1% year-over-year increase in headline inflation, matching January’s low point. But if that number comes in hotter than expected, it could throw cold water on the Fed’s rate-cutting ambitions.

It’s a precarious position for bulls, who’ve been riding high on hopes of monetary easing. The jobs report on Friday only added fuel to that fire, showing continued cooling in the labor market. Now, a staggering 75% of traders are betting on a September rate cut, according to the CME FedWatch tool.

But seasoned investors know better than to count their chickens before they hatch. One wrong word from Powell or an unexpected jump in inflation could send stocks into a tailspin.

In the meantime, corporate drama continues to unfold. Boeing pleaded guilty to a criminal conspiracy charge related to two fatal 737 Max crashes, yet its stock perversely rose nearly 1% in early trading. It’s a stark reminder that in these markets, bad news doesn’t always translate to bad performance.

Tesla, the darling of growth investors over the last week, is attempting to extend its meteoric eight-day winning streak. The stock has ballooned by a jaw-dropping 37% over that period, completely erasing its year-to-date losses. It’s the kind of move that has value investors shaking their heads and growth bulls pounding the table for more.

Across the pond, France’s benchmark index ticked up slightly after a left-wing coalition secured the most votes in the country’s election. It’s a stark reminder that political upheaval can send shockwaves through global markets at a moment’s notice.

As we head into this pivotal week, one thing is clear: volatility is the name of the game. Traders who aren’t prepared for wild swings in both directions are likely to get caught flat-footed.


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