Powell Has Stopped Handing Gifts to Wall Street on Fed Day

In what was a brutal 2022 for investors, there was at least one sure-fire, money-making proposition for much of the year. All they had to do was buy stocks and bonds seconds before Federal Reserve Chair Jerome Powell began speaking at his post-FOMC press conference and dump them as he was wrapping up.

That March, when the Fed began hiking interest rates, the stock market’s gains during this 60-minute window were spectacular: 1.6%. And then they just kept coming: 2% at the May meeting, 2% in June, and 1.6% in July. Whatever Powell said, traders took it as dovish, or at least less hawkish than the FOMC statement they had just read. In February, the frenzy suddenly reappeared. Another 1.6% stock surge. Bond gains looked similar, albeit smaller.

Now, those easy-money FOMC days appear to be over.

Powell Reversal

Strip out that February pop and Powell’s press conferences are mostly delivering small losses, including today, when stocks jumped right as he began speaking only to fade minutes later. That’s bad news for the rapid-fire, quant-heavy shops that analysts suspect were most deftly mining the trade.

But there’s a bigger, more important message here: The wild volatility that erupted across markets at the outset of the hiking cycle is slowly disappearing. With inflation now cooling, the economy normalizing and the Fed close to ending its hikes — a quarter-point increase today and maybe another in coming months — the predictability of future rates is much greater than it was when Powell was urgently orchestrating the largest increases in decades. There’s simply less room for traders to misinterpret his comments.