Massive Jerome Powell Error Roils the Market
New data shows the Federal Reserve made a major error in its latest interest rate decision and the market took a big hit.
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On Wednesday, Jerome Powell and the Federal Open Market Committee held interest rates steady despite heavy pressure from the Trump administration. Part of the reason for the hawkish posture of the Fed was that the employment picture was solid and that the primary risk to the economy was inflationary pressure due to tariffs.
On Friday, the "strong jobs market" thesis was called into question. The July jobs report was one of the worst in years. Not only did the July numbers miss the forecasts by about 20,000 jobs, but the May jobs report was revised down from 144,000 to 19,000, and the June jobs report was revised down from 147,000 to 14,000.
The rosy employment picture no longer looked so rosy and called into question the Fed’s justification for being so slow to cut interest rates. Both the bond market and equities sent the message that they wanted a cut, and now the odds of a cut in September are above 80%, up from less than 40% on Thursday, per Seeking Alpha.
The Nasdaq suffered its worst one-day decline since April on Friday, but it wasn’t just the poor jobs report that caused the pressure. Amazon AMZN and Apple AAPL failed to deliver strong enough reports, and there was a delayed "sell the news" response to stellar earnings from Meta META and Microsoft MSFT.
The bulls were also up against extended market conditions. Many stocks needed a rest, and the recent speculative action in junk stocks didn’t help either.
The bears have been anticipating this corrective action for a very long time, but now the big question is, how deep does it go? Is this a significant top as we head into a seasonally weak time of the year, or just a much-needed correction that will create conditions for more upside once things are sorted out?
No one knows the answer at this point, but I see plenty of stocks with solid fundamentals that will be of great interest as the charts find support and build a new foundation. There may be some short-term pain, but a Fed rate cut is coming, and that is going to give the bulls some new ammunition.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
