Here’s what Fed Chair Jerome Powell’s remarks mean for the market

S&P 500 just shot up more than 3.0% versus its intraday low after Fed Chair Jerome Powell reiterated that smaller rates hikes could start from December.

Summary of Chair Powell’s remarks

But he still made some comments that weren’t that rosy. Here’s a summary of what Chair Powell said today:

There’s a long way to go to restore price stability Monetary policy will remain restrictive for a while Terminal rate will be higher than previously expected Supply chain issues are showing signs of easing Labour market despite some improvement, remains tight

Also on Wednesday, the Bureau of Economic Analysis reported an annualised gain of 2.90% in third-quarter GDP. Powell added:

I do continue to believe that there’s a path to soft-ish landing. If you look at the history, it’s not a likely outcome but this is a different set of circumstances. I think it’s very plausible; it’s still achievable.

Could it be the start of a new bull market?

Fed Chair expects PCE inflation to come in at 6.0% for October versus 6.2% in the prior month.

That was another positive which pushed the benchmark index above its 200-day Moving Average – a breakout that’s usually construed as a bullish signal. Still, Bill Smead of Smead Capital Management continues to recommend caution. On CNBC’s “Powe Lunch”, he said:

There are a lot of rallies in bear markets. By looking at the abrupt rally in the most decimated tech stocks, that looks a lot like a bear market rally.

Importantly, the CBOE Volatility Index stands at just over “20” at writing. The previous four times this year, such a reading was followed by a sharp sell-off as Josh Brown explained a day earlier (read more).

In his address, Chair Powell also said that housing inflation could continue next year. Still, Smead is sticking to his constructive view on “homebuilders”.

[Powell] said we have a shortage of houses and we want to own a business that meets an economic need. He talked about how much prices went up last year. That was a temporary price bubble, not a building bubble. There’s a bright future for these companies.

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