Jerome Powell Confirms the Fed Doesn't Have a Clue
Investors are well aware of the uncertainty already but were unhappy to hear the Federal Reserve chair confirm it.
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The Federal Reserve did exactly what was expected on Wednesday afternoon and made no changes to monetary policy.
Chair Jerome Powell acknowledged increased inflationary pressure and made clear that without progress on inflation, there will be no rate cuts. His summary of the situation was essentially that the Fed just doesn't know what the impact of high energy prices and tariffs will be. The level of uncertainty was so pronounced that Powell effectively dismissed the dot plots, which show Fed members' predictions of future rate cuts, as of limited value given current conditions.
None of this was new or surprising. Investors already knew all of it. But there is a difference between knowing something and having the Fed chairman confirm it in a press conference with no offsetting positive. The market was not in the mood to hear it again, and the selling that followed reflected the sour mood.
The Numbers Were Ugly
Stocks continued to fall after the press conference concluded, finishing at the day's lows. Only 22% of stocks ended in positive territory and nearly 300 names hit new 12-month lows. There was no rotational action to ease the pain. It was a sea of red with all the major indices down roughly 1.5% or so. When breadth gets that poor and new lows expand that sharply it is not a tape that rewards aggressive buying or predictions of a bottom.
Real Problem Is the Timeline
It is obvious that uncertainty about inflation and economic growth is weighing on the market. What is really causing serious damage is the uncertainty about how long that will last. At some point, oil and energy prices will cool. No one knows when that will be or how high they go while we wait. That is a genuine economic headwind and it raises a meaningful risk of stagflation if economic growth starts to slow at a faster pace than currently expected.
The one thing holding the market up is the hope that some positive development will provide clarity on how long it takes to normalize the oil situation. We are deep in the fog of war right now and there is not much to do about it except wait for something to change. Many stocks are being unfairly punished in this action. That is what happens when indices and ETFs are being sold indiscriminately and no one cares about fundamentals. The innocent victims pile up.
What Matters Now
Great opportunities are developing in the wreckage. To take advantage of them you need two things: plenty of capital and the right mindset. Stay patient. Stay optimistic. The stocks being thrown out with everything else on Wednesday are exactly the names worth having on your shopping list.
Have a good evening. I'll see you tomorrow.
Related: Fed Chair Jerome Powell Reveals Intent to Stay While Detailing Rate Cut Decision
At the time of publication, DePorre had no positions in any securities mentioned.
