Who is responsible for selling on Thursday? This analyst says the Fed and you

But on Thursday it was down 3.6% in the S&P 500 SPX,
-0.57%And
To the second lowest close of the year, there were two main culprits: the Federal Reserve and, oddly enough, investors themselves.

Krishna Guha, vice president of Evercore ISI and a former senior aide to former New York Fed Chairman Bill Dudley, says stocks have fallen more or less because they rose so much the day before, when the S&P 500 rose 3% on Wednesday.

“Powell’s mistake was to strike a tone calling prematurely for financial conditions to ease in the first place, and the market’s mistake to rally aggressively without enough new information to justify it in circumstances where such a rally could not be sustained,” Guha says.

The reason for Wednesday’s gains was that Powell removed the possibility of a 75 basis point hike at its next meeting, as he also said the US could have a smooth landing and did not take a firm stance on whether the Fed should do so. Leverage rates go beyond the vague concept of neutrality.

“By the standards of the current debate, this was bullish – bullish in a market where the situation was bearish, which led to a violent rally,” Guha said.

Even if Powell is right on the economic outlook, it is self-defeating to be optimistic about this early on, as it eases financial conditions that need to tighten to meet the Fed’s goal of zero inflation.

“Significant risks cannot continue to rise until inflation and inflation drivers – including demand and labor market pressures – shift more decisively towards acceptable levels, which we see as less than 3 per cent on core personal consumption expenditures, the simple reason being that if it does not reflect his deal, the Fed will have to rein in.

Joseph Carson, director of global economic research at Alliance Bernstein, notes that policymakers have had to raise official rates above peak inflation every time there has been inflation above 4%.

He says that even a measure of inflation that removes some particularly hot items — the CPI excluding food, energy and shelter and used car and truck prices — is up 5.8% year over year, matching the fastest pace in 40 years. “So even if that’s the rate of inflation the Fed needs to target to reverse the inflation cycle, it’s still calling for the fed funds rate of 6% or more than twice the peak rate shown in the official policy makers’ forecast for March rates,” Carson says. .

But before the Fed can raise rates to 6%, he says, “something else may break to stop the Fed.” This could be a sudden fall in the financial markets, or a halt in the flow of credit.

“Given the current market environment, none of those conditions exist, so the risk, right now, is that the Fed’s tightening trajectory could look a lot like the past until something else breaks. Investors are on guard ahead.”

commotion

The US economy added 428,000 as the unemployment rate remained at 3.6%, the Labor Department said. Average hourly wages rose 0.3%. Job growth came in slightly ahead of estimates, while the unemployment rate was a tenth above consensus.

New York Fed President John Williams is scheduled to speak at 9:15 a.m., one of several Fed officials scheduled to speak on Friday.

Zillow Group Z,
-4.35%

ZG,
-4.30%
He warned that “consumer transaction value growth trends are declining and experts have divergent views on what happens next,” which sparked better-than-expected revenue in the first quarter of the real estate services group.

SQ block,
+ 0.67%
Shares rose after the financial services payments company gave optimistic signals about its Cash App business.

Bausch + Lomb priced its initial public offering, which is due to start trading Friday, below the expected range, at $18 per share.

The Food and Drug Administration said it will limit the availability of Johnson & Johnson’s JNJ,
-0.22%
Corona virus vaccine due to the risk of blood clots.

markets

After a 1,063 point drop in the Dow Jones Industrial Average,
-0.30%
– It hurts to write that – US stock futures ES00,
-0.78%

NQ00,
-1.51%
rose down.

CL.1 Crude Oil Futures,
+ 2.17%
Traded at less than $110 a barrel, the 10-year Treasury yield is TMUBMUSD10Y,
3.127%
It was 3.06%.

The most important indicators

Here are the most active stock market indices as of 6AM ET on MarketWatch.

graph

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2022-05-06 10:43:00

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