Powell's Rate Cut Hint Pushes a Weak Market Even Lower

The market was already in bad shape after the Trump administration imposed restrictions on the sale of Nvidia’s NVDA H2O chip to China. It also appears that trade negotiations with Japan, the European Union and others are going to take some time.

However, a bigger problem developed later in the day when Jerome Powell emphasized that the labor market was "in a really good place," which the market took as an indication that the Fed would be in no hurry to cut interest rates or provide accommodation. Powell also indicated that tariffs will likely mean higher inflation and slower growth, but he the Fed wants to see some data. Powell noted that consumer and business sentiment is dropping due to uncertainty.

This lack of initiative to ride to the rescue of the market caused the already weak market to fall even further. There was a bounce near the close that took the indices off the lows, but it was a fairly steady decline all day, with breadth moving toward three-to-one negative. The Nasdaq 100 fell about 3% in large part due to Nvidia and semiconductors.

The Russell 2000 IWM lost 1%, but small caps were the strongest group of the day. Energy was the only sector that managed a positive close.

The primary question now is whether there will be any positive trade news before the long Easter weekend. Despite the hints from the White House that something is coming soon, it doesn’t look like that means tomorrow. Given the risk of negative news over the Easter break, there may not be much interest in ramping up exposure.

Earnings season kicks off in earnest next week, but the problem is that management will have a tough time providing forward guidance when there is so much economic uncertainty.

Tariffs, uncertainty and a not-so-dovish Fed is not a market-friendly combination.

Have a good evening. I’ll see you tomorrow.