Fed Chair Powell’s Speech Spurs Uncertainty in Markets and Job Market

In his speech before the Senate Banking, Housing, and Urban Affairs Committee, Federal Reserve Chairman Jerome Powell indicated the possible need for higher interest rate hikes in the future to curb stubbornly high inflation.[0] Markets reacted to the speech by expecting a 50 basis point rate hike at the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for March 21-22, 2023, with the market’s targeted terminal rate expectation now jumping to between 5.50% and 5.75%.[1]

The market reaction was seen in the prices of many stocks. United Natural Foods (UNFI) closed down more than -28% after reporting Q2 adjusted EPS of 78 cents, well below the consensus of $1.43, and cutting its full-year adjusted EPS forecast.[2] US Foods Holding Corp (USFD) and Sysco (SYY) also closed down more than -3% and -1%, respectively, on the news.[3] CrowdStrike Holdings Inc. (CRWD) gained more than 3% after the security software company posted higher-than-expected fourth-quarter adjusted earnings and a fiscal first quarter outlook that also beat analyst expectations.[4]

Tesla (TSLA) closed down more than -2% after it announced it was cutting the price of its Model S and X electric vehicles for the second time this year, while Berenberg downgraded the stock to hold from outperform.[3]

Looking at the fixed income market, the 10-year Treasury yield (US10Y) was lower by 6 basis points to 3.90%, while the 2-year yield (US2Y) slid 2 basis points to 4.99%.[5] The 2s10s curve has inverted even more after surpassing a full percentage point on Tuesday, the highest it has been since 1981.[5]

The U.S. stock indexes opened cautiously higher on Wednesday after Tuesday’s sell-off induced by Powell’s remarks.[6] At 9:30 a.m., the Nasdaq 100 (NDX) and the Dow Jones Industrial Average (DJIA) had increased by 0.1% and 0.08%, respectively, while the S&P 500 (SPX) had decreased by 0.02[1] March 8th[7]

Yesterday, two job reports revealed that the labor market is still remarkably strong.[8] First, the U.S. Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS.[2]

0. “Dow Industrial Average moves back to negative on the year” ForexLive, 7 Mar. 2023, https://www.forexlive.com/technical-analysis/dow-industrial-average-moves-back-to-negative-on-the-year-20230307

1. “Stock Market News Today – Indices Finish Mixed as Investors Weigh Economic Data” TipRanks, 8 Mar. 2023, https://www.tipranks.com/news/stock-market-news-today-futures-inch-higher-after-digesting-powells-hawkish-tone

2. “Stock Market Today: Stocks Choppy After Strong Jobs Data” Kiplinger’s Personal Finance, 8 Mar. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-030823-stocks-choppy-after-strong-jobs-data

3. “Stocks Mixed As Powell Softens His Tone” Barchart, 8 Mar. 2023, https://www.barchart.com/story/news/14905134/stocks-mixed-as-powell-softens-his-tone

4. “S&P 500 stumbles as signs of tight labor market add to Fed fears By Investing.com” Investing.com, 8 Mar. 2023, https://www.investing.com/news/stock-market-news/sp-500-stumbles-as-signs-of-tight-labor-market-add-to-fed-fears-3025374

5. “Nasdaq, S&P, Dow under pressure as Powell says no decision made on tightening pace” Seeking Alpha, 8 Mar. 2023, https://seekingalpha.com/news/3945417-sp500-nasdaq-dow-jones-stock-market-powell-testimony-economic-data

6. “Stocks close mixed after Powell’s testimony and fresh jobs data” CNN, 8 Mar. 2023, https://www.cnn.com/business/live-news/stock-market-house-testimony-jerome-powell-030823/index.html

7. “Sizing Up Stocks and Bonds as a Cornucopia of Jobs Data Awaits” RealMoney, 6 Mar. 2023, https://realmoney.thestreet.com/investing/stocks/sizing-up-stocks-and-bonds-as-a-cornucopia-of-jobs-data-awaits-16117555

8. “Dow ends slightly lower, stocks finish mixed as higher Fed rate risk, upcoming jobs data worry Wall Street” MarketWatch, 8 Mar. 2023, https://www.marketwatch.com/story/u-s-stock-futures-unable-to-rebound-from-latest-sell-off-as-more-powell-talk-looms-8c9714e9