Federal Reserve Chairman Jerome Powell may be trying to squash the stock market bubble

Brian Sozzi
·Executive Editor
Updated 3 min read
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So much for Federal Reserve Chairman Jerome Powell being viewed as a bestie to investors.

“Powell hit the markets,” is an email subject line this writer got intra-day from veteran markets strategist Dennis DeBusschere of EvercoreISI. The email came smack in the middle of Powell testifying in front of the Senate Banking Committee —and the Dow Jones Industrial Average being off more than 300 points from session highs early Tuesday.

Powell initially did his part Tuesday to support a market some 40% higher from the March 23 lows (due to the Fed’s various stimulus measures), acknowledging once again that low interest rates and bond buying would be the norm for the forceable future. It would appear for the second week in a row though that Powell’s tough guy public tone — or poor bedside manner as Trump adviser Peter Navarro thinks — is leaving a bad taste in the minds of Wall Street bulls.

WASHINGTON, June 10, 2020 -- Photo taken on June 10, 2020 shows the live broadcast of U.S. Federal Reserve Chairman Jerome Powell's address during a press conference in Washington D.C., the United States. The U.S. Federal Reserve on Wednesday kept its benchmark interest rate unchanged at the record-low level of near zero amid mounting fallout from the COVID-19-induced recession, and projected interest rates to remain at the current level through at least 2022. (Photo by Liu Jie/Xinhua via Getty) (Xinhua/Liu Jie via Getty Images)

Here are several things Yahoo Finance picked up on during Powell’s testimony that may have spooked investors (yet again):

  • Fed is not planning a pickup in the pace of corporate debt purchases. The Fed’s announcement on Monday it would finally be purchasing corporate bonds raised expectations for a more aggressive Fed on this front.

  • Powell noted it will be a “long road back” for the U.S. jobs market as the COVID-19 pandemic lingers. Powell — speaking to reporters following the Fed’s latest decision on rates last Wednesday — said “millions” of people will not return to work for some time because of the aftershocks to businesses from the health scare. The Fed’s revised economic projections underscored Powell’s worries on the pace of the jobs market recovery.

  • Fed has not committed to the hotly debated concept of yield curve control as a means to lower interest rates further.

  • Powell struck a cautious tone on the economic recovery underway, saying it’s the “beginning” of a bounce-back. That runs counter to what has been priced into stocks right now (a V-shaped recovery).

If Powell is trying to stomp out (via blunt language on the health of the economy) market speculation fueled by his work and that of team Fed, he is proving successful. The Dow cratered more than 1,800 points last Thursday following Powell’s FOMC decision day presser where he warned about the jobs market recovery. Tuesday early afternoon, the Dow was off greater than 300 points from session highs amid similar Powell comments and feels wobbly, according to strategists like DeBusschere.

Next up on this front — another Trump tweet attacking Powell’s bedside manner.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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