Powell Vows to Speed-Up Taper, Market Falls

The spark and flame from news reports ahead of today’s opening bell regarding uncertainty in treating the new Omicron variant of Covid-19 turned into a bonfire upon Fed Chair Jay Powell’s change of tone regarding inflationary pressures on the market. We began Tuesday trading with Moderna MRNA CEO Stephane Bancel quoting his scientists in hunting down Omicron — “it’s not going to be good” — and ended near session lows with Powell’s proposal to speed up the asset purchase taper.

Shares plummeted for the second trading day in the last three, with the Dow finishing down -652 points, -1.86%, the S&P 500 -1.90% and the Nasdaq dropping -1.55% on the day. The small-cap Russell 2000 spent its third straight day in the red, -1.92%. All indexes are now notably off the recent record closing highs set only a short time ago.

Fed Chair Powell spoke before a Senate committee today, expressing concerns that with inflationary pressures high in the current economy, the Fed may be expected to “taper sooner” by “a few months” from the original blueprint issued at the meeting from the start of this month. This seems designed to soften the market over policy changes to increase the taper as of the next Federal Open Market Committee (FOMC) meeting in mid-December. Powell also responded to a question where he suggested it is time to “retire” the word “transitory” when it comes to inflation.

This surprised many market participants, who expected the Fed Chair’s reaction to unknowns surrounding the discovery of the Omicron variant along the dovish side. This is, after all, the same Fed Chair who let inflation run up well past the optimum 2% for months while employment, especially among lower-wage earners, worked to catch up.

However, it is important to understand the methodology of the Fed Chair, which is to analyze the actual economic data that has been reported. We’re still at least a couple weeks out from seeing any dent in economic development related to this Omicron variant — of which, as of this article, no cases have been reported in the U.S. (although epidemiologists would likely assume they’re already here) — and, as such, would not expect the Fed to change tack based on so many unknowns. But increasing the rate of taper — at this time?

It is also not the Fed’s job to do anything but control inflation and promote full employment. And just because the rate of taper may now be increasing as of next month — something that would have met with applause prior to this Omicron news — does not mean the Fed is suddenly offsides on economic policy. Might we see stagflation enter the economy with a new wave of coronavirus meeting supply and employment heating up inflation? Perhaps, but again: the Fed is not going to act on anything for which it does not have sufficient data.

Salesforce.com CRM outperformed expectations on both top and bottom lines in its Q3 earnings report after today’s closing bell, with earnings of $1.27 per share easily surpassing the 92 cents in the Zacks consensus, on $6.86 billion in sales which outdid the $6.79 billion expected. Yet shares are down -6.2% on the news, following -4.45% in regular-day trading, largely on lower Q4 earnings estimates: 72-73 cents per share is now expected; the Zacks consensus had been looking for 79 cents per share next quarter.

Hewlett Packard Enterprises HPE posted mixed fiscal Q4 results after today’s close, with earnings of 52 cents per share beating by 4 cents, but revenues of $7.35 billion missing the $7.4 billion in the Zacks consensus. Its HPC & AI segment came in -11% below estimates, while its Intelligent Edge business came in -13% beneath expectations.

Tomorrow we get private-sector payrolls for November from Automatic Data Processing ADP, with expectations for a pullback to a still very strong +506K new private-sector jobs created for the month. October surprised to the upside with a total of +571K new private-sector jobs created. There is some seasonality to consider in this data: holiday shopping season is hastening employment for retail, food & drink establishments and warehousing. Will jobs numbers continue at these high levels? Tune in tomorrow morning.

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