Testifying Tuesday – Powell’s First Speech to Congress Looms Large

Powell speaks! 

We have a new Fed Chairman and clearly the bets are he'll be the same as the old boss as the markets have now recovered to within 3% of their all-time highs ahead of his 10 am address to Congress, led by Global Tech stocks Facebook (FB), Alibaba (BABA), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL) as well as Bidu (BIDU), Nvidia (NVDA), Tesla (TSLA) and Twitter (TWTR).  

Those stocks are up just under 20% for the year, more than recovering from the 10% dip we had earlier in the month – up almost 15% since Feb 7th though, once again, I feel like we're simply back to being overbought and haven't learned any lessons.  We'll have to see though, clearly we broke over our bullish technical "strong bounce" lines and now we'll see if the indexes can complete the round-trip back to their highs or if Powell sends us scurrying back below where we started the day yesterday.

"I would think there's no upside for [Powell] making a splash because he's dealing with a committee that's in flux, just coming together," said Robert Tipp, chief investment strategist at PGIM Fixed Income. "The market tends to do a good job of panicking and defining the range you're likely to be in … Once the taper tantrum got going, 3 percent was the watermark."  That seems to sum up the general sentiment, which is assuming a very gradual return to normal interest rates.  

What we're expecting to hear from Powell is whether the Fed is more worried about overshooting (too loose) or undershooting (too tight) their 2% inflation target (just right) and the nuance will be whether Powell indicates concern about the recent bump in inflation – especially ahead of Thursday's PCE numbers, which are expected to come in hot, around 0.4%, which would pop the Fed's chart from 113.9 to 114.3 and that would be up 2.1% for the year – magic time! 

Since the PCE was at 105.4 in Jan 2013 and took 4 years to get to 112.2 (6.8), the prior pace of PCE inflation has been 1.7% so jumping to 2.1% is already a 23% increase in rate and jumping 0.4% in a month, as expected, is pointing…
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