The Fed & Powell JUST *CRASHED* Markets

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email at staff meet kevin.com my opinion

of this Congressional healing was an

absolute disgrace this was the first

time we've had a semi-annual report

provided by Cal uh Jerome Powell to

Congress since before the banking crisis

and it appeared that pretty much every

banker and Wall Street suit somehow

managed to get in touch with their

Congress member or uh basically to

provide them some form of script on

exactly what they wanted which is of

course less regulation and uh finger

pointing rather than like actual

productivity here that that's really

what a lot of this seemed to be now

there were some takeaways that are worth

analyzing and will do that but I really

just want to upfront say it really felt

like a lot of these congressmen and

women went up there and read their

script from the Wall Street bankers and

said things like uh we don't need more

regulation

uh Congress doesn't even know how to

handle appliances in reference to like

stoves and stuff and uh oh I can't read

that word right so I'm gonna

mispronounce it look it was really

embarrassing because we were just three

hours of listening to this stupid crap

to get some small nuggets so what were

the small nuggets that we got from

Powell and wire markets not reacting

very well pretty much well why haven't

they basically all day long uh with the

exception of Bitcoin but that's

different so first of all Jerome Powell

made it clear that the scp's projection

of one to two raid hikes was more likely

than not to come true and that's one in

part because we don't know what kind of

lags there are to monetary policy we

could always cut again if we need to and

that the economy is actually doing

decently well that is we have this

luxury of being able to say hey we've

got too much uh labor tightness to where

we could take a little bit from here and

and solve the inflation side of the Dual

mandate and this is something that

Jerome Powell really reiterated it took

quite a while and again three hours to

get through it but I think markets are

reconciling drum Powell's reiteration of

let's take from unemployment and solve

the inflation issues by potentially

raising rates a couple more times up to

a couple more times at least one rate

hike now being priced in at about a 79

chance for July and then you're starting

to see the pricing in only about a 13

chance right now but you're starting to

see those two rate hikes priced in by

September

I think markets are having problems

today reconciling this with what just

happened in California California's

unemployment rate and this was announced

today Rose to 4.5 percent in May so for

last month that's up from 3.83 in August

of 2022 and Californians often even

though people hate on California it's

often seen as somewhat of a Bellwether

for National Trends and we haven't seen

this kind of Divergence between

California's unemployment and the United

States unemployment level since the

1970s and since Jerome Powell did

reiterate hey since we're you know maybe

the banking issues were indeed just

individual mismanagement rather than a

true problem of tighter fed policy in

other words if tight fed policy was

really driving banking failures then

maybe it's time to stop raising rates

but if that was really just individual

management then maybe maybe we can keep

raising rates because we have the

Liberty to do so now

that has also coincided with the

five-year Break Even rate slightly

ticking up to about 2.2 percent now at

least during testimony it was sort of

trending up again and at the same time

as California's unemployment data came

out Markets started reconciling this

idea of okay so five-year break-evens

are not falling even at you know fed

rates being at five percent you've got

California's unemployment rate Rising

which is a sign of potential impending

hard Landing so to speak at the same

time as Jerome Powell is talking about

higher rates maybe it's time to take a

little bit of a breather from the stock

market rally and that's kind of exactly

what we saw with the exception of

Bitcoin which has been trading sideways

for about three months had a great start

to the year but kind of sat out most of

the stock markets rally since the

banking crisis of course since the

meeting uh or since this testimony ended

we're now sitting with the NASDAQ down

about 1.25 percent on the day you've got

chips selling off you've got for example

Intel down five percent amd's down uh

5.5 Nvidia is down two percent Tesla's

down five percent so a lot of the

growthy names I mean C3 AI up 11

although I've never been a big fan of

that one a lot of the growthy names

Seeing Red Apple only down about half of

a percent uh and Google's sitting at

about two percent down so some give back

of the rallying and excitement that

we've seen over the last uh three months

here starting really today as maybe

markets are starting to realize okay

maybe we do need to get used to the idea

that rates will have to continue to

Trend slightly higher we do have

generally good Trends with inflation but

again based on when we actually think

the Federal Reserve is really going to

cut rates which is around a five-year

break-even rate of around 1.6 percent

and being stuck around 2.2 yeah there is

that likelihood we do need higher

rates from the fed and so markets will

have to price that in now how much those

higher rates will actually end up

affecting anything to be determined this

could entirely just be what we're seeing

in markets now a slight give back of of

just some of the rallying we've had over

the last week because really nothing

terribly groundbreaking came out of this

Congressional meeting uh again we you

know heard some of the usual uh

revisiting of hey if the labor is tight

then that's going to slow down how

quickly we can get down non-housing

Services which are responsible for about

a little more than half of core

inflation and that it'll take some pain

there to actually bring that down that

inflation down and we're seeing that now

in California but that's going to take

some time again to get to the National

level and that's how you get the bearish

narrative which suggests okay well by

the time it gets to a national level

it's too late now you're in a

recessionary environment

and so I think that's what markets are

kind of like okay so recession or not

like if Powell's going to be a little

more aggressive does that mean we Trend

towards a recession or or can we avoid

it and this morning we were looking at

some GDP figures and comparing that with

what's going on with housing data which

could suggest that housing data alone

and residential fixed investment could

actually pull us out of a recession

before we even go into one which would

be great for avoiding a recession that's

the biggest fear of markets really I

think today is more of just a give back

than a reaction to anything in

particular that drone Pearl said other

than probably the biggest item is that

his indication is look if the economy

keeps going the way it is maybe the

summary of economic projections will be

accurate before the meeting this morning

I had suggested something that you would

want to hope for would be some kind of

distancing from the summary of economic

projections we didn't get that this time

in fact if anything what we got got was

a Powell that reiterated the summary of

economic projections which is actually

the opposite of what he did last week

during the Federal Open Market Committee

presser during the presser he distanced

himself from the summary of economic

projection saying yeah well you know

everybody kind of submits their their

estimate and they do that from their

offices around the country and I don't

really know much about them distanced

himself today he actually reiterated by

reiterating hey look 16 per 16 out of

the 18 members are projecting another

eight eye uh you know quite a few of

them even projecting two more rate hikes

but again I think this is where we have

to evaluate how much should markets

really care about an additional

25 basis points here or 25 basis points

there if anything another 25 basis point

hike reiterates the belief that the

economy should be strong enough to

withstand it and earnings should be

strong enough to absorb another rate

hike actually to some extent potentially

be good news so I don't know that we

really got any Clarity that we were

hopefully looking for uh out of out of

today's Congressional testimony

listening to every word of it for three

hours uh and a lot of it being very

frustrating actually trying to kind of

sift through all the noise and just pick

out what was actually relevant to the

markets I I can only say that the

takeaway is that hey

Powell's ready for another hike or two

and that's going to lead to some kind of

breather here in in rally mode if we

just now accept that and then after this

testimony ends tomorrow we just go right

back to Rally mode by you know Thursday

Friday and then into next week as the

first half of the Year closes out

entirely possible however your next big

catalysts coming up is something to

consider

earning cycle

as we close out the first half of the

year we are going to go into Q2 earnings

so as soon as this testimony ends we'll

have about a week of somewhat quiet and

then we're right into Q2 earnings and so

those will be uh very very closely

watched especially with the new

valuations that we have now for a lot of

companies uh much higher than what we

had for q1 earnings so anyway uh there

you have what happened here I do

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does it thanks so much for being here

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