Fed Chair Powell’s testimony on Capitol Hill over the next couple of days will be the main focus of the market, and with perceived hawkish commentary today, things don’t appear to be off to a good start. As Chair Powell highlighted, stronger-than-expected economic and inflation data has lifted expectations for interest rates which has resulted in the S&P 500 erasing earlier gains and trading down 1% on the session as of late morning.

Using data from our Fedspeak Monitor, in the chart below we show the historical average performance of the S&P 500 on days in which there is Fedspeak going back to 2018 when Powell took over as Chair (that only looks at actual Fed speakers and excludes any reports like the Beige Book, FOMC Meetings, and Meeting Minute releases which we also cover in our Fedspeak Monitor). As might be expected, hawkish commentary generally tends to be received poorly by the market with the S&P falling an average of 7.5 bps on those days compared to a 9.2 bps gain on days with dovish commentary. As for times when the speaker is Chair Powell, a hawkish tone tends to see the S&P 500 react with a decline, however, the 5.8 bps drop is smaller than the norm. That contrasts with Powell’s dovish commentary having been far more well-received by the market. More broadly, and perhaps more surprisingly, any time an active voting member of the FOMC is the speaker the average move in the S&P 500 tends to be smaller in magnitude than when it is a non-voter speaker regardless of whether the tones are hawkish or dovish. 

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