The stock market fell on Friday as Federal Reserve Chairman Jerome Powell made hawkish remarks on monetary policy at the annual Jackson Hole Symposium, even as inflation fell.
After Powell’s comments, the
Dow Jones Industrial Average
has a drop of 548 points, or 1.7%, while the
has fallen 2%, and the
has fallen 2.6%.
The stock market reacts to the fact that, “in essence, Powell is clearly stating that right now, fighting inflation is more important than supporting [economic] growth,” wrote Jeffrey Roach, chief economist at LPL Financial.
Powell emphasized that the Fed will adopt a policy stance aimed at curbing inflation and economic growth. The last two inflation results showing cooling price increases, he noted, are too small a sample to force the Fed to retreat from its tightening policy right now.
Data released on Friday showed the Fed’s preferred measure of inflation, the core measure of personal consumer spending, rose 4.6% year-on-year in July, down from June’s 4.8% increase.
However, interest rates were on the rise on Friday. The yield on the 2-year note, which attempts to predict the level of the Fed Funds rate a few years from now, rose as much as 2.4%, around its multi-year high last hit in mid-June.
This means that, right now, the stock market is not getting what it wanted. The stock market would like to see signs that the pace of rate hikes will slow, especially since it has rallied this summer on hopes of fewer hikes.
Entering Friday, all three major indexes had posted double-digit percentage gains from their mid-June lows for the year, and the market is now hoping the Fed will raise the funds rate by just half a percentage point in September. But the Fed Funds futures market is pricing in a 56% chance of a three-quarter hike, up from about 45% before Powell spoke.
However, there is good news. The Fed may need to raise interest rates aggressively for the next few months, but it may slow after that period, especially if inflation can continue to decline. The terminal fed funds rate, or the rate at which the Fed will stop hiking, is still less than 50% likely to go as low as 4%.
“The quiet place it is [the Fed] The understatement is that these kinds of short-term rates would really punish risk markets,” said James Camp, managing director of strategic income at Eagle Asset Management.
In fact, Powell left open the possibility of a smaller half-point increase in September, saying the Fed would wait to see more economic data before making a decision. So the aggressive rate-hike — or hawkish — rhetoric “hardly hit the table,” wrote Gerard MacDonell, economist at 22V Research.
Here are some stocks in action on Friday:
(tick: SGEN) fell 8.2% after a report speaking from
(MRK) to acquire the company — in a deal estimated at around $40 billion — have stalled.
the stock was stable.
( EVBG ) jumped 13% after a report that the enterprise software company is exploring a sale to companies such as an industrial firm or private equity group.
( MRVL ) fell 3.1% after the data center semiconductor maker issued a tepid third-quarter sales forecast, expecting revenue of about $1.56 billion—below Wall Street’s forecast of $1.58 billion.
( SNY ) rose 2.6% on Friday after Citi analysts put the stock on positive catalyst review as the settlement of a case over the drug Zantac may be significantly less than the $20 billion the market expects.
The stock ( FSLR ) gained 2.6% after being upgraded to Buy from Neutral at Bank of America.
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