Tuesday, February 27, 2018

Markets Get Spooked By Bullish Fed Chairman Jerome Powell

Stocks posted their biggest daily percentage losses since February 8 after comments by newly-appointed Fed Chairman Jerome Powell before the U.S. House of Representatives’ Financial Services Committee sent the major indices into a tailspin.

In his first congressional visit since replacing Janet Yellen, Powell's upbeat commentary on the health of the economy was taken by some to indicate that he may be in favor of four rate hikes this year, instead of the three already anticipated by the Street.

The key phrase from the new Chairman was, "my personal outlook for the economy has strengthened since December," which analysts thought to be a little too optimistic, which in turn could prompt the Fed to raise interest rates at a faster pace than previously thought.

With algos and ETFs fine-tuned to turn on every headline, Tuesday's downside move is largely the result of a market two-closely intertwined and concerned over daily news rather than as a discounting mechanism for future earnings. The current contract of markets - and its computer-driven near-instantaneous reactions - can cause sudden directional movement, just as it kept the lid on volatility over the previous nine years of seeming tranquility in a low-interest rate environment.

Nowadays, everything moves at once, like a stampeding herd, rather than taking a slower, cautionary, individual stock approach. Today's action also reinforced the notion that good news was bad, as the narrative that an improving economy may set the stage for quicker interest rate rises. The 10-year-note ended the day yielding 2.91%, not an alarming number, but one which is near the recent high end of the benchmark gauge.

Powell speaks before the Senate Banking Committee on Thursday, completing his mandated annual addresses to congress. After today's fandango, it's very likely that the Fed Chairman could backtrack a little, calming fears and sending stocks higher on the final day of trading for the month. It should be worth noting how Chairman Powell reacts and whether he plays to the market or remains true to his predetermined outlook.

Stocks would have to stage a monumental rally to finish February on the plus side. The Dow is down nearly 740 points since January 31.

Dow Jones Industrial Average February Scorecard:

Date Close Gain/Loss Cum. G/L
2/1/18 26,186.71 +37.32 +37.32
2/2/18 25,520.96 -665.75 -628.43
2/5/18 24,345.75 -1,175.21 -1,803.64
2/6/18 24,912.77 +567.02 -1,236.62
2/7/18 24,893.35 -19.42 -1,256.04
2/8/18 23,860.46 -1,032.89 -2288.93
2/9/18 24,190.90 +330.44 -1958.49
2/12/18 24,601.27 +410.37 -1548.12
2/13/18 24,640.45 +39.18 -1508.94
2/14/18 24,893.49 +253.04 -1255.90
2/15/18 25,200.37 +306.88 -949.02
2/16/18 25,219.38 +19.01 -930.01
2/20/18 24,964.75 -254.63 -1184.64
2/21/18 24,797.78 -166.97 -1351.61
2/22/18 24,962.48 +164.70 -1186.91
2/23/18 25,309.99 +347.51 -839.40
2/26/18 25,709.27 +399.28 -440.12
2/27/18 25,410.03 -299.24 -739.36

At the Close, Tuesday, February 27, 2018:
Dow Jones Industrial Average: 25,410.03, -299.24 (-1.16%)
NASDAQ: 7,330.35, -91.11 (-1.23%)
S&P 500: 2,744.28, -35.32 (-1.27%)
NYSE Composite: 12,819.22, -180.40 (-1.39%)
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