Powell Sets Markets on Fire, No Pivot Ahead

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Alex Partida

Nov 02nd 2022  .  3 min read

When the opening bell sounded, the indexes started to creep lower. The selling across the board was relatively weak and resembled a typical day with the Federal Open Market Committee (FOMC). On days with FOMC looming, the price action is often very controlled and cautious. 

The Nasdaq was noticeably weaker than the other indexes in the market, but buying in more prominent names, such as Apple, kept it afloat throughout the day. In other tech names, there seemed to be a rotation of money; possibly big money on Wall Street getting positioned for FOMC later in the day.

FOMC expectations 

Looking ahead to the event, the idea of rate hikes slowing down has started circulating in the market. This idea indicates that the economy is doing better and that inflation is almost under control. One of the biggest announcements expected was a decrease in rate hikes for the next FOMC meeting. While this idea has yet to receive confirmation, the market started to price it in, bringing the market higher. 

FOMC reality

The initial report during the FOMC release doubled down on the idea of slowing rates, but when Federal Reserve (Fed) Chairman Jerome Powell took the mic for questioning, things became rocky. 

Powell began his speech by reiterating that the FED would like to slow rates. He stated that the plan would be to slow hikes but would not commit to slowing rates. When questioned on his lack of commitment, he refused to pivot, like many thought he would. 

Powell pointed out issues with the plan: on the macro, there needs to be economic data to provide a reason to slow rates, which hasn’t happened yet. Once again, Powell pointed toward the Personal consumption expenditures (PCE) price index as a macro indicator that the FED uses. This means that investors should monitor PCE data to help guide what potential FOMC meetings may look like.

Critical points by Powell

The crucial words that came out of Powell’s mouth that will likely have lasting effects on the market were, “It’s premature to think about pausing rate hikes.” This statement by Powell is a polite way of saying that the market likely got ahead of itself, assuming the soft landing was about to arrive finally.

Targets for the end of the week

Toward the end of the week, the 21-day exponential moving average (EMA) at 3,800 on the S&P 500 futures is going to be a crucial level on the chart. If the market can not reach this level, expect some downside continuation.

A case for some upside momentum to build again will start with establishing the market above this level. 

Powell closes the door on bulls

At the close, both the Nasdaq and the S&P 500 futures were heavily negative. The S&P 500 futures closed down 2.57%, losing 99 points, while the Nasdaq futures closed down 3.47%, a loss of 393 points. The Dow Jones futures followed along, down 514 points, losing 1.57%.

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