Correction For Nasdaq- More Indices To Follow?

I called Jay Powell's bluff a week ago. Remember when he said last week that we're still far from The Fed's inflation targets?

Well, I was right to doubt him. The market didn't like his change in tone Thursday (Mar. 4).

You see when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won't change while admitting that inflation may "return temporarily," how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:

  1. It's a significant backtrack from saying that inflation isn't a concern. By admitting that inflation "could" return temporarily, that's giving credence to the fact that it's inevitable.
  2. The Fed can't expect to let the GDP scorch without hiking rates. If inflation "temporarily returns," who is to say that rates won't hike sooner than anyone imagines?
  3. Fool me once, shame on me, fool me know the rest. If Powell changed his tune now about inflation, what will he do a few weeks or months from now when it really becomes an issue?
  4. Does Jay Powell know what he's doing, and does he have control of the bond market?
  5. A reopening economy is a blessing and a curse. It's a blessing for value plays and cyclicals that were crushed during COVID and a curse for high-flying tech names who benefitted from "stay-at-home" and low-interest rates.
  6. The Senate will be debating President Biden’s $1.9 trillion stimulus plan. If this passes, as I assume it will, could it actually be worse for the economy than better? Could markets sell-off rather than surge? Once this passes, inflation is all but a formality.

Look, it's not the fact that bond yields are rising that are freaking out investors. Bond yields are still at a historically low level, and the Fed Funds Rate remains 0%. But it's the speed at which they've risen that are terrifying people.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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William K. 1 month ago Member's comment

why should anyone believe that Powell or any of the others there are at all concerned about the vast majority of the population of the US? Inflation robs those of us who are unable to adjust their incomes magicaly to compensate for it.

And how many of those folks with $40M of assets will be hurt at all if they fail to grow to $50M by next week?? The rest of the nation is different from Wall Street!.

Constant increasing of the wealth of the wealthy is just like supporting any other kind of addict. (I am not advocating taking away, only pausing the growth push so that others may be helped.)

And the new president with the goal of wildly flinging cash at all comers clearly does not understand much about cause and effect, does he??? Aiding those in desperate need is good, giving to those not in need is a waste of assets and serves no benefit.