Fed Chair Jerome Powell will testify at Capitol Hill today. Expect heightened volatility similar to Tuesday’s trading action. The market continues to believe that the central banks would cut interest rates. Despite the Feds having no reason to stimulate the already hot economy, the lower rate expectations fueled an expensive stock market.
Powell will have little regard for the stock markets. The Fed’s monetary policy cares primarily about achieving stable inflation and full employment. January inflation and jobs data both indicated that the Fed does not need to change rates. Although it is unlikely to do so, a rate hike would slow housing prices and other inflationary forces more decisively.
On the last day, technology firms with a trillion-dollar market cap pulled back slightly. Apple (AAPL) fell while Nvidia (NVDA) traded flat. In the chip sector, Intel (INTC) lost 5.4% on Tuesday while AMD ended the day unchanged. A correction in these stocks increases if the market changes its expectations for a June rate cut. Markets still expect four times quarter-percentage-point cuts in 2024.
This Friday, the BLS will post payroll data. Next Tuesday, the CPI report will reveal the pace of inflation for February. Should either or both data points come in very strong, markets are bound to react to it this time.
