Federal Reserve Chairman Jerome Powell is a big deal, yet the market made a bigger deal out of his remarks before the House Financial Services Committee than might have been warranted.
The focal point, according to press reports, was Mr. Powell's acknowledgment that his own economic projections have increased since the December FOMC meeting when policy rate projections indicated a median estimate of three rate hikes for 2018.
The immediate connection made by the market was that Mr. Powell was tacitly conceding that a fourth rate hike in 2018 is not out of the question.
To be sure, that was a very convenient cause-and-effect excuse for the manner in which the capital markets traded following his remark, but we question whether Mr. Powell's thinking was the big surprise it was made out to be.
If anything, the bigger takeaway was that Mr. Powell served a reminder that the path of least resistance for policy rates right now is to the upside. Whether that means one, two, three, four, or more, rate hikes is going to depend on the data.
In other words, nothing can be viewed as a guarantee when it comes to the policy path because the future is too unpredictable. All the market can do now is extrapolate from recent trends what it thinks the future will look like and that in turn will feed day-to-day volatility in its price action.
Some days, therefore, will be good and others will be bad. That's the nature of the beast and the reality of a market confronted with some important inflection points.
What can't be overlooked from Tuesday's action is the fact that the S&P 500 had surged 9.8% over the course of just 11 trading sessions leading up to Mr. Powell's testimony.
The stock market was short-term overbought just as it had been short-term oversold earlier in the month. It was ripe for a retreat of some kind and what better excuse could there be to take some money off the table than a reportedly hawkish-leaning Fed chairman, as well as some political chatter intraday suggesting an infrastructure spending plan might not come to pass in 2018?
We'd add, too, that some month-end trading dynamics could have been in play that encouraged an inclination to sell after the quick, and sharp, rebound effort.
Notably, there hasn't been any strong follow-through selling this morning.
The S&P futures are up four points and are trading 0.3% above fair value despite a weaker than expected manufacturing PMI reading out of China, a weaker than expected industrial production reading out of Japan, and a report out of the eurozone showing the lowest year-over-year CPI reading (+1.2%) since December 2016.
The confluence of those factors should presumably be driving more selling interest since they all reflect a loss of economic surprise momentum that had been instrumental in driving the market higher at the end of 2017 and in January. For good measure, home improvement retailer Lowe's (LOW) disappointed with its fourth quarter report and outlook.
Perhaps the market is now thinking such developments fit the view that banking on four rate hikes this year could be an overreach. There's no telling for sure, but for now, yesterday's rate-hike hoopla might have been more of a cause-celebre than a true cause of an overbought stock market's poor showing.
The yield on the 10-yr note has dropped two basis points to 2.89%.
In other matters, the second estimate for Q4 GDP was released and it showed a slight downward revision to 2.5% (from 2.6%) that was in-line with the Briefing.com consensus estimate. The GDP Price Deflator was revised down to 2.3% (Briefing.com consensus 2.4%) from 2.4%.
There weren't any glaring revisions in the contributions to fourth quarter GDP growth, yet the change in private inventories (from -0.67 percentage points to -0.70 percentage points) was a primary driver of the small revision.
Other data out today includes the Chicago PMI report for February (Briefing.com consensus 64.5; prior 65.7) at 9:45 a.m. ET and the Pending Home Sales report for January (Briefing.com consensus +0.4%; prior +0.5%) at 10:00 a.m. ET.