How to Navigate the Stock Market After Powell’s Hawkish Speech
I’ll briefly analyze the stock market’s reaction to Powell’s hawkish speech yesterday in this article. I’ll offer insights on navigating the current market and provide probabilities for potential Fed interest rate cuts in 2025.
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How to Navigate the Stock Market After Powell’s Hawkish Speech
Is the party over? The major indices all ended the day in the red. The S&P 500 and Nasdaq Composite both fell 0.6%, the Dow Jones Industrial Average dropped 0.5%, and the Russell 2000 was hit the hardest with a 1.4% loss.
But don’t sound the alarm just yet. This selling was just the market taking a breather after that huge post-election rally. The Russell 2000 is still up 3.4% from where it was before the election results came in.
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Yesterday’s economic data was the spark that lit the fuse for this round of profit-taking. The October PPI numbers showed inflation is still simmering in the background. The headline PPI rose 0.2% month-over-month, right in line with expectations, however, 2.4% year-over-year, a hair above the 2.3% forecast.
But it was the core PPI, which strips out food and energy, that really caught the market’s attention. It jumped 0.3% month-over-month, beating the 0.2% prediction, and rose 3.1% year-over-year, topping the 3.0% estimate. That suggests there’s upward pressure on supply chain costs that could fan the flames of inflation down the road.
And the Fed is taking notice. Chair Powell made it clear that the economy isn’t giving them any reason to rush into lowering rates. His hawkish tone was a wake-up call for investors who thought rate cuts were a done deal. That’s why the lackluster PPI and Powell’s comments were the one-two punch that sent stocks tumbling.
But let’s keep things in perspective. The market is still rock-solid, so there is no need to panic. We just saw some healthy profit-taking today. The major indices hit their lows for the session as investors recalibrated their rate-cut expectations. The Fed funds futures market only gives a 62.6% chance of a 25 basis point rate cut at the December FOMC meeting, down from 85.5% earlier.
Treasuries were all over the place. The 10-year yield flirted with 4.50% before ending up three basis points lower than yesterday at 4.42%, while the 2-year yield inched up one basis point to 4.29%.
The selling was broad-based, with nine out of 11 S&P 500 sectors ending the day in the red. Three of them got hit especially hard, falling over 1.5%.
I called it in my last report – Thursday was shaping up to be a volatile day, and it was a bearish sign for the market. That made my call to enter Chinese stocks like Bilibili and JD.com a misfire. Bilibili actually delivered some impressive numbers, with EPS soaring 87% quarter-over-quarter to -$0.19 and revenue jumping 19.23% to $7.31 billion. However, the results still missed expectations and showed signs of growing cost pressure. It might be time to cut and run in this increasingly bearish environment.
As I predicted, Powell’s speech brought the volatility. With the economy and markets firing on all cylinders, there’s no compelling reason to cut rates. And if they do, inflation could come roaring back. Powell was sending a clear signal that the Fed is aware of that.
According to FedWatch, the odds of a rate cut in December are now down to 62.6%. And by March, there’s only a 23% chance we’ll be 50 basis points below where we are now. It’s time to get cautious and rethink those risk bets.