J Powell Killed Mr. Market Again

Jerome Powell announced the interest rate decision that was made by the Federal Reserve. He told the market that there will be high interest rates until inflation has had a very noticeable slow down. The markets did not react well to his speech as all of the major indices experience a major sell-off into the red after being nicely in the green for the day. I want to point out a very scary thing that Powell was talking about and that would be the fact that he said the housing sector may suffer or have another major correction. So all of you homeowners be prepared. And dont sell your house at the bottom tof the correction unless you absolutely must. The picture below illustrates the major sell-off that occured following the interest rate decision.

The data shows that over a billion dollars in capital exited the S&P 500 the day of the interest rate decision. This is a big outflow even for the SPY.

After his speech the treasury yield inversion grew even more. In fact this is the first time that I have noticed that the three major treasuries were inverted completely. The shorter expirations are providing larger yields. That shows that investors are betting on less growth hence less inflation the further out in time you go. This is a bad look for the markets and for future economic growth.

The federal reserve not only decided on todays interest rate hike. They also mapped out the future expected interest rates going forward. The info below is telling us that the Fed. believes that interest rates will remain above 4% until around 3rd quarter next year if the plan goes accordingly.

It appears that the market wants to take another leg down so here are the levels to watch on the way down. It is possible that the price action might find some friction at these price points so watch out for your short plays. You might need to cover for some days possibly if a bounce occurs. Remember that in a downtrend the market doesn't just go straight down. There will be choppiness on the way down.

Since J. Powell mapped out the interest rate plan going forward a few years there are only a few things left to look forward to to determine future market sentiment. Basically if inflation does not abate then I would expect interest rates to stay high longer than the Fed. had mapped out for us. So keep an eye on inflation. Also the earnings reports going forth will be very important. Powell has put the economy in restrictive territory based off of the high interest rates. So if companies hint towards higher interest rates effecting revenue or inflation still effecting revenue then we may possibly get another bad earnings season. That would be a very scary look for the markets as it would appear more like a recession might be around the corner in the years to come.

Another thing to think about if you are looking for a reason to be bullish is the fact that Jerome Powell actually stated that the Fed. will make sure that they will do enough to bring down inflation before easing on interest rates. And they actually mapped out a plan for the future to provide an aspect of certainty. If the market is pricing in the future then when inflation starts to come down then we might see a significant uptick in the markets that might seem premature. So keep that in mind.