Consolidation Tone Persists In Front Of Powell Testimony

The major indices eased their way into this holiday-shortened week with some modest downside action on Tuesday. It appears at the moment that price action modesty will remain a virtue.

Currently, the S&P 500 futures are down 12 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 54 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down 89 points and are trading 0.2% below fair value.

There simply isn’t a great deal of conviction in the futures trade. That is due partly to market participants waiting to see if the indices relent to stronger selling pressure following their big run since late May and partly due to waiting to see what Fed Chair Powell has to say in his semiannual monetary policy testimony before the House Financial Services Committee at 10:00 a.m. ET.

Actually, it’s not so much what he will say in his testimony (the Federal Reserve released its Monetary Policy Report on Friday and some prepared remarks from Fed Chair Powell were released a short time ago). It is what he will say in response to questions posed by committee members, many of whom will likely fixate on the mini-banking crisis in March, their concerns about inflation, and how the Fed plans to bring inflation down without unduly impacting a labor market filled with voters.

Mr. Powell will attest that the banking system is resilient, that the inflation adjustment process has a ways to go still, and that he continues to think a soft landing remains possible. That’s what he essentially said at his FOMC press conference a week ago, so it would defy reason for him to say anything demonstrably different only a week later.

In any case, the market’s attention will be fixed on the Q&A period when it begins. For now, it is entertaining the notion that the market is overdue for a consolidation period.

There are some headlines this morning that have furthered that notion:

• FedEx (FDX), which toped fiscal Q4 EPS estimates on weaker-than-expected revenue, said the demand backdrop is likely to pressure sales growth in FY24.
• Barclays downgraded Tesla (TSLA) to Equal Weight from Overweight, saying it thinks “it is prudent to move to the sidelines” after the stock’s huge rally.
• The UK reported hotter-than-expected CPI and core CPI data for May, fueling speculation that the Bank of England could raise its key policy rate by 50 basis points at Thursday’s policy meeting.
• President Biden called Chinese President Xi a “dictator” in a fundraising speech. That drew a rebuke from China, which called it a public political provocation, according to Bloomberg.

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Originally Posted June 21, 2023 – Consolidation tone persists in front of Powell testimony