We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans.

We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals.

Thank you, and I look forward to your questions.

-Jerome Powell

It’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.

-Jerome Powell

Yesterday, the Federal Open Market Committee (FOMC) cut Fed fund rates by 25 basis points (bps) but changed its economic projections as Fed Powell declared the economy is “very strong,” yet clearly, there was anxiety in the air. 

The FOMC sees the economy slightly stronger next year than September and unemployment slightly lower. However, Fed funds rates are substantially higher to counter a big upward adjustment in Personal Consumption Expenditures (PCE) inflation.

Powell was crafty enough to let reporters ask about Trump policies on that score when he mentioned the Fed’s September 2018 "Tealbook" and the sentence above.

His comments and economic assumptions were contradictory. Powell isn’t looking at the inflation or jobs data I’m looking at, or he’s seeing it differently. He commented on how hard it was to find a job but did so in a very low-key, nonchalant manner that belies the chart below.

The entire press conference reminded me of that famous Chris Berman line: "Rumblin', Bumblin', Stumblin." To describe broken plays with wild outcomes on ESPN, I would also add slippery and confusing. When the dust settled at the closing bell, the only word to use was “carnage.”

Carnage

Make it 13 days with more decliners than advancers for the S&P 500, but yesterday wasn’t even close as 96.4% of the components closed in the red.

On the New York Stock Exchange (NYSE), 90.4% of components finished lower, and 92.9% of the volume was to the downside.

On the NASDAQ Composite, 84.5% of components finished lower, and 60.9% of volume to the downside. 

Market Breadth	NYSE	NASDAQ
Advancers	202	681
Decliners	2,637	3,724
New Highs	41	124
New Lows	209	320
Up Volume	506.15 million	3.89 billion
Down Volume	4.69 billion	6.06 billion

Heat Map

This reminds me of modern weather maps designed to hype “climate change” and the end-is-near scenario. It was a brutal session.

The End Is Nigh

The last time the stock market freaked out like this, the Bank of Japan (BOJ) hiked rates and suggested additional hikes were coming. The Japanese market was eviscerated, and the following day, officials said that the BOJ had articulated a change of heart.

During that tantrum, the Volatility Index (VIX) erupted higher. Yesterday’s eruption was the second biggest one-day spike on record, +74%.

And the 10-Year Treasury Yield (TNX) moved higher.

It’s the (bifurcated) economy.

Small-Caps Go Up in Smoke

The value propositions for buying small caps were lower rates ahead of the maturity wall and a strong domestic economy. Now, higher for longer takes away half the reasoning to own them, so small-caps took the chin the hardest, but there was a pain in all the nooks and crannies of the market.

Yesterday, on Making Money with Charles Payne, I used headlines from that morning to underscore economic weakness on several fronts. Powell’s repeated use of “strong” makes him seem highly disconnected.

The good news is that this market rally has been crying for a break. Yesterday’s off-ramp was excessive but, as they say, “overdue.”

Now, we wait and watch.

Today’s Session

We are seeing a bounce-back pre-open now that the temper tantrum is over. Interestingly, a Bloomberg Pulse survey found that most respondents think the ten-year will be lower by the next time the Fed updates the dot plot, very few see it below 4.0%. 

That means higher for longer.

We know the market can deal with this. I do worry about the way this counteracts efforts from the next administration to bring fair trade.

Comments

we need an overhaul of how the FED models look at the economy. Simple analogy. When you drive your car you look through the windshield, looking for potential dangers. NOW, drive your car by looking in the rearview mirror. Mike T. on 12/19/2024 8:13:36 AM

Powell's signals are that of a broken satellite, we can't read them. Larry B on 12/19/2024 10:11:44 AM

I think Jay is out of touch. I doubt he's ever gone to a grocery, pumped gas, really looked at his home and car insurance bills, or applied for a mortgage. I get anxiety every time he speaks - my portfolio always takes a hit. Bill Frohberg on 12/19/2024 11:14:04 AM

Mike, Agree, but it seems to even go beyond that. The most current data points they use are just as flawed, where they are subject to revisions. Yet, when asked about parts around the micro levels and how those are accounted for, they revert back to what they see at the macro every time. Terry Dowler on 12/19/2024 11:39:37 AM

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