Did Jerome Powell just bust the stock market rally? -CNN | CarTailz

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Federal Reserve Chairman Jerome Powell has the power to make or break markets these days. On Wednesday he decided to disappoint.

What’s happening: The central bank announced its fourth straight rate hike of three-quarters of a percentage point and continued its aggressive and unprecedented campaign to bring inflation under control.

What investors focused on, however, were Powell’s comments about where interest rates might peak — and how long they might stay there before the Fed changes course.

“The question of when to moderate the pace of hikes is now much less important than how much to raise interest rates and how long to keep monetary policy tight,” Powell told reporters. The Fed, he said, “could be moving to higher levels than we thought.”

This is causing the market to recalibrate and dampening hopes that a major policy shift could be in the offing.

The background: Given how tough the Fed has already been – and an expectation it does not want to overshoot as rate hikes take time to feed through to the economy – US stocks jumped in October. The Dow rose 14%, posting its best monthly gain since January 1976.

This massive start now seems to have been very premature.

The S&P 500 was down 2.5% on Wednesday, while the Dow fell more than 500 points and shed 1.6%. Global equity markets continued to push lower on Thursday.

Meanwhile, the US dollar strengthened and government bond yields – which move in the opposite direction to prices – rose. The US 2-year note yield is now at its highest level since 2007.

“What we saw was a more hawkish message than markets were expecting,” Laura Cooper, senior macro investment strategist at BlackRock, told me. “Essentially it killed the pivot dreams.”

Economic data, particularly for the labor market, still looks relatively strong. US job vacancies surged unexpectedly in September, at 1.9 for every available worker. Friday’s latest jobs report is expected to show that the economy added another 200,000 jobs in October – fewer than last month but still a very solid number.

Powell said that “data since our last meeting suggests that the final interest rate level will be higher than previously expected.”

Guillaume Menuet, Citi Private Bank’s head of investment strategy and economics in Europe, Middle East and Africa, said the recent stock market bounce “clearly has the hallmarks of a bear market rally.”

He told me that it was built in part on the “mistaken expectation of an impending Fed turnaround.” The wake-up call came this week.

When Google — the giant of the digital advertising industry — signals that the business climate is deteriorating, investors take notice.

But it’s not the only company hit by lower spending as firms retreat in anticipation of a global recession.

“Large advertisers that we traditionally receive spend from are not spending this quarter,” Roku (ROKU) CEO Anthony Wood told analysts after the company reported earnings on Wednesday. “You don’t hang out with anyone.”

Roku shares fell 19% in premarket trading on Thursday after the streaming hardware maker said fourth-quarter revenue would fall as economic sentiment weighed on consumer spending and urged advertisers to cut budgets.

“We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or recover,” it said in a letter to shareholders.

The bottom line: Last year, companies tried to capitalize on a post-lockdown spending spree over the holiday period. The biggest problem was getting enough goods on the shelves. But advertisers are making it clear that this year will be different.

“This holiday season will likely be different than the typical holiday season given the unique settings and features,” Wood said.

There are signs that supply chains are finally returning to normal.

See here: The Global Supply Chain Pressure Index boiled up by the Federal Reserve Bank of New York has fallen sharply since April. Shipping giant Maersk said this week that container shipping rates started falling towards the end of the last quarter “due to weaker customer demand combined with markets beginning to normalize with fewer supply chain disruptions” and less congestion.

But the companies are not out of the woods yet. They’re still struggling with backlogs that weigh on sales.

Ford saw U.S. sales slump 10% in October from a year ago as the company continued to struggle with supply chain difficulties. It announced on Wednesday that it sold 158,327 vehicles last month, up from nearly 176,000 vehicles in the same period last year.

Remember: The company said in September it couldn’t finish assembling 40,000 to 45,000 large SUVs and pickups because it didn’t have all the necessary parts.

In March, the company announced that it would ship some vehicles without some less important computer chips and add them later. Bottlenecks and rising material costs added about $1 billion to Ford’s spending in the third quarter.

My conclusion: supply chains are complicated and chaotic, and positive developments will not penetrate the system overnight. We’re not there yet.

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