Corporate America is enjoying the fattest profit margins in seven decades. Consumers, still flush with cash, remain optimistic. Together, it might’ve been too much for Jerome Powell -- a man who likely opposes market confidence as he fights inflation. His blunt warning Friday that the economy will be a victim in the battle sent stocks into a tailspin.
“The market was inappropriately optimistic that the Fed was going to be able to be more dovish today and over the course of the next six to 12 months,” said Phil Orlando, chief equity market strategist at Federated Hermes. “Powell dissuaded the market from believing that, and we think stocks should go lower, materially lower.”
“It would not be too much of a stretch to call this an ‘anti-pivot’ speech,” Evercore ISI analysts Krishna Guha and Peter Williams wrote in a note. “Pivot optimism seems to have lingered longest in equities amid rising hopes for a risk-friendly reaction function when trade-offs emerge –- setting stocks up for a larger move lower on the day.”
For those nursing wounds Friday, it may be minor recompense, but they could be trends bulls monitor closely once the immediate implications from Powell’s speech fade. After all, from stock pickers to fast-money traders, almost everyone has hunkered down by reducing stock positions to below longer-term norms.