Tech Stocks Falter Until Powell Speaks Up

Hedge fund managers that railed against the Reddit-fueled stock surge last month were probably not so livid when one man sent stocks soaring yesterday.

Tech stocks and wider markets recovered from an early-morning thrashing Tuesday after Federal Reserve Chairman Jerome Powell tamped down inflation concerns.

Shareholder Rollercoaster

The S&P 500 dipped as much as 1.8% early Tuesday morning, appearing headed for a 6th straight day of losses – its longest losing streak in a year. The tech sector took the brunt of the damage in early trading, as FAANG stocks slipped and Tesla dropped double digits.

At a Senate Banking Committee hearing Tuesday, Senator Pat Toomey said “warning signs” for rampant inflation, like rising bond yields and skyrocketing commodity prices – not to mention trillions in stimulus spending – are now “blinking yellow”. But Fed Chair Jerome Powell had a different take when he stepped up to the mic:

• Powell reassured the committee that out-of-control inflation is “not a problem”. He even busted out his rhyming dictionary to drop this catchy quip: “Inflation dynamics do change over time, but they don’t change on a dime.”
• Assonance aside, Powell affirmed that a “burst of fiscal support or spending” shouldn’t have a lasting impact on inflation and the Fed would stick with its easy-money policies of late.

Powell’s assertions come in opposition to Republican lawmakers and some economists, who suggest President Biden’s $1.9 trillion relief bill could overheat an economy already in recovery mode. When asked whether he would be “cool with” Congress not passing Biden’s stimulus package, Powell replied coyly that the Fed isn’t in the business of making policy recommendations.

Powell Power

Tech stocks and broader markets rebounded hard from their early lows after Powell quelled inflation fears:

• The S&P 500 erased all of this morning’s losses, closing barely positive for the day.
• Tesla overcame its early sell-off to almost fully recover over the afternoon, eventually closing down just over 2%.

the takeaway

While Powell’s comments appeased the day traders, the macroeconomists might not be as thrilled. The Fed Chair reiterated we are a “long way” from employment goals, calling the economic outlook “highly uncertain”.