Powell Triggers Selling With 'Strongly Differing Views' of December Rate Cut
After the Fed Chair reveals a surprising skeptical view on future cuts, Microsoft, Meta, and Alphabet are volatile on mixed earnings reports.
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After the Federal Reserve announced a quarter-point rate cut on Wednesday afternoon, Jerome Powell caught the market by surprise when he stated that "there are strongly differing views at today's meeting about how to proceed in December. A further reduction in policy rate in December is not a foregone conclusion, far from it."
Investors were not expecting that comment, and it triggered a sharp drop in December Fed Fund futures. The odds of a December cut were 96% a week ago and dropped to 66% following Powell's comment.
Powell made a number of less hawkish comments as well, such as the fact that non-tariff inflation is close to the Fed's 2% goal and that "AI is not the dot-com bubble — there are earnings."
One of the problems that the Fed is struggling with is a lack of accurate data due to the government shutdown. Powell drew an analogy to driving in fog and suggested it's a good idea to slow down before making a decision.
Investors only had a short time to digest the Fed news before some major earnings news was released. Both Microsoft (MSFT) and Meta (META) sold off initially on what looked like good numbers, but Alphabet (GOOGL) moved more than 6% higher on its report.
Dip buyers are showing some interest in Meta and Microsoft, but the conference calls will be key. The Magnificent Seven names have consistently been good buys when they see a negative reaction to a report that isn't a big miss.
The big challenge for traders right now is that there are very extended technical conditions to deal with as the news hits. If the news is not very strong, then there is a strong inclination to lock in gains and step aside until the smoke clears.
On the other hand, there are still investors who want to put more money to work into seasonal strength to end the year, and they will take advantage of dips. I'm looking at META as a potential buy on this pullback.
We'll see how things shake out overnight, but I expect elevated volatility to end the week and some good trading opportunities in select stocks.
Have a good evening. I'll see you Thursday.
At the time of publication, Rev Shark was long META.
