Powell Speaks to the People

By Alex Eule |  Wednesday, May 4 The Trillion-Dollar Presser. It turns out that all it took to save the market were a few choice words from Jerome Powell. While stocks were initially little moved by the Fed's monetary policy decision, released at 2 p.m. Eastern, they soared once the Federal Reserve chairman began his press conference at 2:30.  To be sure, stocks were never going to react to a 50 basis point hike — that's been built into the numbers for at least six weeks. The big question was what came next. And Powell quickly offered his view to the journalists gathered in Washington, D.C.: "There is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings." That got stocks moving higher. But it was Powell's answer to the second question of the press conference that really sparked the rally. Asked whether future hikes could be even larger than 50 basis points (or half a percentage point), Powell was clear: "A 75 basis point increase is not something the committee is actively considering."  By the end of Powell's 47-minute press conference, stocks were up 2%. And by the close, the S&P 500 was up 2.99%, for its best day since May 18, 2020. In dollar terms, Powell's speech added about $1.1 trillion in value to the index. The Dow Jones Industrial Average soared 932 points, or 2.8%, while the tech-heavy, and more rate-sensitive, Nasdaq Composite gained 3.2%.  For a Fed that's struggled with its response to inflation, the market's response was a sign, at least a temporary one, that investors still have faith in the central bank's ability to restore some stability to pricing.  Jamie Cox, managing partner with Harris Financial Group, told my colleague Megan Cassella that Powell achieved his goal today. “The first and most important tool of inflation fighting is credibility—and Chair Powell established that today,” Cox said. "Chair Powell went a long way toward quelling market worries about a policy error by the Federal Reserve.” Speeches aside, today's move was a classic relief rally. Heading into trading today, the S&P 500 was down 13% since its January peak.  "There's a real battle going on between dip buyers and those that believe there is more downside to come," said Chris Zaccarelli, chief investment officer, Independent Advisor Alliance. "We are somewhere in the middle, as we believe we are in a difficult period for markets and that there is still more downside ahead later this year, but we acknowledge that bear market rallies can be sharp and vicious..."

 

DJIA: +2.81% to 34,061.06 S&P 500: +2.99% to 4,300.17 Nasdaq: +3.19% to 12,964.86 The Hot Stock: Paycom Software +13.8% The Biggest Loser: Akamai Technologies -9.7% Best Sector: Energy +4.2% Worst Sector: Real Estate +1.2%