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Fed Chairman Jerome Powell’s speech hovered over markets all week.
Drew Angerer/Getty Images
The stock market was selling off on Friday, as Federal Reserve Chairman Jerome Powell makes belligerent remarks on monetary policy at the annual symposium in Jackson Hole, even in the face of falling inflation.
The
lost 714 points, or 2.1%, while the
fell 2.5%, and the
decreased by 3%. The indices are on track to snap a two-day winning streak.
Powell stressed that the Fed will adopt a policy aimed at limiting inflation and economic growth. The latest inflation results showing a slowdown in price increases, he noted, are too small a sample size to force the Fed to back off its restrictive policy at this time.
“Chair Powell has poured cold water on the market’s belief that the Fed will adopt a mildly restrictive policy and then pause,” wrote Jeff Klingelhofer, co-chief investment officer at Thornburg Investment Management. “The Fed won’t rest until it builds meaningful confidence that inflation is on a clear path toward 2%.”
Data released on Friday showed that The Fed’s favorite inflation measurethe core personal consumption expenditure index rose 4.6% year over year in July, down from the 4.8% rise recorded in June.
Still, rates were up on Friday. The 2-year Treasury yield, which tries to predict where the federal funds rate will be in a few years, rose about 2.4%, a hair below its last multi-year high reached in mid-June.
This means that currently the stock market is not getting what it wanted. The stock market would like to see indications that the pace of rate hikes will slow down, mostly because he rallied this summer in hopes of less hiking.
Going into Friday, all three major indexes had risen in double digits in percentage terms from their mid-June lows for the year, and the market is now hoping the Fed will raise the funds rate by just half a dollar. percentage point in September. But the fed funds futures market is pricing a 60% chance of a three-quarter point rise, up from around 45% where it had been just minutes before Powell spoke this morning.
There is good news, however. The Fed may need to raise interest rates aggressively in the coming months, but it could slow further after that, especially if inflation can continue to decline. The final federal funds rate, or the rate at which the Fed will stop climbing, is still below 50% likely to go as high as 4%.
“The quiet part that they are [the Fed] not to say out loud is that this type of short-term rate would be really penalizing for risky markets,” said James Camp, managing director of strategic income at Eagle Asset Management.
In fact, Powell left open the possibility of a smaller half-point increase in September, saying the Fed will wait to see more economic data before deciding. So on the aggressive – or hawkish – rate hike rhetoric, “it barely pounded the table,” wrote Gerard MacDonell, an economist at 22V Research.
In line with this hint of optimism, the stock market is not falling to a scary low just yet.
The S&P 500, while falling, still sits just above the 4,100 level, roughly where buyers stepped in to send the index higher this summer. And it is still holding above its 50-day moving average, indicating that market participants are still confident enough in the economic and market outlook to buy at prices in line with their recent trends.
Here are some stocks moving on Friday:
Seen
(ticker: SGEN) fell 5% following a report that spoke of
Merck
(MRK) to acquire the company – in a deal believed to be worth around $40 billion –have stalled.
Merck
the stock was flat.
Everbridge
(EVBG) jumped 14% following a report that the enterprise software company study a sale to the tastes of an industrial company or a private equity group.
Marvell Technology
(MRVL) fell 8.3% after the data center semiconductor maker reported a mixed sales forecast for the third quarter, expecting revenue of about $1.56 billion, lower than the $1.58 billion forecast by Wall Street.
Sanofi
(SNY) rose 1% on Friday after Citi analysts put the stock on positive watch as the settlement of a case involving the drug Zantac could fall well short of the $20 billion market expectation.
First Solar
(FSLR) was stable after being upgraded to Buy from Neutral at Bank of America.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com