'Goldilocks' Powell Gives the Market a Confidence Boost

It wasn’t a big surprise, but Jerome Powell sent a very friendly message to the market on Wednesday. Although he wouldn’t commit to rate cuts, the Fed Chair stated, "We just need to see more good data" and commented on how the central bank was in a good position to deal with any economic slowing. 

The market was already fully anticipating two quarter-point cuts this year, and that was still the case at the end of the day. Powell just gave the market more confidence that the cuts are coming, and there will be speculation that they could cut even more if economic data continues to slow.

As I’ve often written, the market loves to love the Fed. Powell said all the right things, and there was a positive reaction. However, it was well anticipated, and no one was very surprised, so the gains were solid but not crazy. 

Breadth was extremely strong, with around 7,000 gainers and 2,300 decliners, but the best news was that over 1,100 stocks hit new 12-month highs during the day. This is primarily due to the Russell 2000, which has been hitting its highest levels since 2021.

The big issue now is how the market will handle upcoming reports from Meta META, Amazon AMZN, and Apple AAPL. Nvidia NVDA and Microsoft MSFT have seen some huge swings, and traders seem to have regained confidence in the semiconductor sector.

Regardless of what we see in the Nasdaq 100 QQQ, the technical conditions for a continuation of strength in smaller stocks are quite good. The Russell 2000 is looking like a bull market now, and it doesn’t need the Magnificent Seven to continue.

There are lots of earnings coming up, which should produce stock-picking opportunities and some volatility. It also doesn’t hurt that the dovish Fed is providing a tailwind for the smaller stocks. Jerome Powell actually sounded like Goldilocks today about how the economy wasn’t too hot or too cold.

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

At the time of publication, Rev Shark was long AMZN.