Grand Teton National Park has a stern warning for visitors to Wyoming’s mountain oasis. “Bears are active,” it says on its website. “Travel in groups of three or more, make noise and carry bear spray,” is the official advice.
You have to wonder if Federal Reserve Chairman Jerome Powell was hit with bear spray when he arrived at the park for his speech Friday morning at the annual Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City.
Wall Street spent all of this past week worrying about what Powell would say on Friday morning. Concerns that it would take a hawkish tone capped the blistering summer rally that sent the Nasdaq Composite up 20 percent from mid-June to mid-August. June quarter earnings turned out to be just short, rather than scary, and there was fleeting optimism that the Fed could end its tightening cycle sooner than previously expected. But ahead of Friday’s speech, two worrying trends developed. First, interest rates have stopped falling, with the 10-year Treasury yield climbing back above the 3% level, a sign that investors see further significant hikes ahead. Second, we had not-so-great earnings from companies with quarters ending in July.
This was especially true in the technology sector.
(brand: DELL) late Thursday cut its full-year outlook, citing a slowdown in spending on both personal computers and enterprise hardware. That came a day after software giant Salesforce.com ( CRM ) also cut its 2022 outlook, citing customers being slow to approve new projects.
Says Dell Chief Financial Officer Tom Sweet Barron’s that, at the end of the quarter, demand for commercial PCs eased, while hesitancy for infrastructure projects—especially those involving servers—increased. Cloud computing providers were among the holdouts. “They’re not immune to economic cycles,” says Sweet. “We’re seeing sentiment becoming more cautious in our customer base.”
In the end, Powell’s short speech – just 10 minutes long – underlined the Fed’s focus on reducing inflation to 2%, noting that “without price stability, the economy doesn’t work for anyone,” adding that “the burdens of high inflation are falling more heavily on those who are least able to bear them.” (For more on the speech, see this week’s The Economy column.)
Powell said that tackling inflation will require a “sustained period of below-trend growth,” that a month of slightly lower inflation data in July is far short of what the Fed needs to see to change direction, and that the central bank “must hold until the job is done.” Powell made it clear that further rate hikes are coming.
“While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will also bring some pain to households and businesses,” he said. “This is the unfortunate cost of deflation. But a failure to restore price stability would mean much greater pain.” So the Fed will remain hawkish, hardly good news for stocks. They sold out on Friday, with the
Dow Jones Industrial Average
below more than 1,000 units, or 3%, the
3.4% discount, and the
down 3.9%. There may be further unpleasantness.
I had my first byline Barron’s Almost 36 years ago, but I’ve never had my name at the top of Wall Street, and that gives me a special thrill. In my early years here, I spent half my time researching the late Alan Abelson, who created this column, hired me, and always graciously mentioned my name when he used my work in this space.
Alan at that point was our editor-in-chief, chief columnist, guiding spirit and benevolent dictator. At Up & Down, he churned out a weekly dose of common-sense investment advice and sleazy journalism, always wrapped in a risque, devilish spirit. Alan was my mentor and remains my role model and hero. I often wonder what it would do to NFTs, cryptocurrencies, SPACs, the metaverse, Web3, and meme stocks, and I know the answer. He would make mincemeat of it all.
Write to Eric J. Savitz at firstname.lastname@example.org