The first Federal Open Market Committee (FOMC) of 2024 was a remarkable day of chess, checkers, and Jenga yesterday. 

Jay Powell was on a mission to curb the enthusiasm that he created. He walked to the lectern, pulled out the playbook for all to see, and used it more than ever since his second press conference.

The Fed had been moving toward a more dovish tone, and the stage was set for Powell to take a proper bow, after all, the market had already built in his coronation. But Jay Powell flipped the script, and it turns out he was ‘zooming’ Wall Street and not the other way around.

Q: “Do you feel comfortable saying the economy has reached a soft landing at this point?”

A: No, I would not say we have achieved that. We have a way to go...We are not declaring victory at this point."

Jenga!

The market was already waffling when Powell responded bluntly to a March rate cut – then it imploded. 

Powell also gave an “executive summary” praising the growth, labor, and inflation, and cautioned that the outlook on growth moderation and labor rebalancing was still in question.

Before the press conference, mega-caps stocks were already under pressure, and there was no way the rest of the market would come to the rescue. It had been interesting to see if money would roll out the behemoths and seek refuge in small-caps, after all, the meek are supposed to inherit the earth.

Deliberate Powell

The question is why was Powell so deliberate? Why did he have to be so precise and tempered in his responses?

Throughout the presser, Powell stuck to his new Mantra:

• Confident
• Confirmation
• Sustainably

He denied reaching a soft landing, warned it would take years for wages to normalize, and the inflation fight still has a way to go.

The Market Zooms Back

With the Fed March 2024 meeting off the table, the consensus for a cut at the May meeting popped.  And now a 50-basis points (bps) cut is in play.

Let's face it, the pivot crowd doesn’t like getting fooled. So, they threw a tantrum, folded their arms, and plotted revenge.

FOMC Statement: This is one heck of a rewrite from the FOMC (posted by WSJ).

By now, everyone knows or heard that a strong January leads to a strong rest of the year, but this time, there’s a caveat.

The Market Wasn’t Up in January

Yes, the S&P 500 was higher on the year, but only four of eleven sectors finished higher. 

Bond yields crumbled on the news. I’m still unsure what that’s all about, but normally, it's good news for stocks. Let's not forget the FOMC conclusions are often extreme, and the next day, it offers better clarity.

• 10-Year Treasury Yield: 3.96 -2.27%
• 30-year Treasury Yield: 4.21 -1.47%

Then, there’s earnings after the close, big-time earnings.

 

Today’s Session

Questions about the health of the jobs market continue to mount ahead of tomorrow’s jobs report.

• Initial jobless claims climbed to 224,000 against consensus of 214,000.
• Continuing claims climbed to 1.89 million against consensus of 1.83 million.

January layoff announcements spiked.

Fourth quarter productivity improved at faster pace than expected in part because unit labor cost slowed to only +0.5% consensus was +1.1%.

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