Investors Brace For Powell Testimony And Jobs Report

This week is going to be a buzzing one for investors as they eagerly await Federal Reserve Chair Jerome Powell's comments and Friday's jobs report. These economic insights are crucial as they provide clues about the Fed's direction going forward. It's safe to say that all eyes and ears will be tuned in to Powell's testimony on Wednesday.

The bi-annual Humphrey Hawkins testimony, instituted in the late 70s during the Volcker era, aims to address inflation concerns. Powell's testimony during this time holds great significance in determining his stance on the current state of economic data in the US. Additionally, it will shed light on whether he believes financial conditions may need some tweaking – either loosening or tightening.

The Fed's Recent Talk

If we pay attention to recent statements from Fed officials, it seems like they are setting the groundwork for Powell to come in and make a strong impact. Some even speculate that he might drop a 50 basis point bombshell. While that might be a stretch, it's likely that Powell will confirm what we've been hearing from the Fed in recent months.

This testimony will likely be Powell's final public appearance before the Federal Reserve meeting on March 22nd. Consequently, the markets will pay significant attention to his words. Ahead of his testimony, financial analysts and experts have put forward their own theories. Krishna Guha, for instance, suggests that Powell might hint at a calibrated upward move in the estimated peak interest rate if future data confirm the strength seen in January. However, Guha doesn't believe that Powell will fuel speculation of a 50 basis point move. So, we can expect a measured tone from the Fed chair.

Economic Data Points to Watch

In the midst of all this anticipation, we have two critical economic data points coming up. First, the non-farm payrolls (NFP) report on Friday. This monthly jobs report is always a market mover. It provides insight into the strength of the job market and overall economic health. Next, we have the Consumer Price Index (CPI) the following week. Together, these reports will shape market sentiment and potentially influence the Fed's decisions.

If these reports come out hot, we might see a traditional move from the Fed – perhaps an op-ed or an article in The Wall Street Journal. This has been their usual approach during the rate hiking cycle. But, of course, everything depends on how the data unfolds. If the reports exceed expectations, we might witness a run-up in stock prices.

The Heat is On

The recent data we've received seemingly confirms the heat in the economy. ISM readings from last week showed higher prices paid components, indicating higher than desired inflation by the Fed. If the February jobs report follows in the footsteps of January's blowout report, which saw 517,000 job growth, then expect more market volatility. Even if February's job growth estimates come in at 215,000, it still represents significant job creation – historically above trend. Additionally, wage growth is predicted to be around three tenths of a percent, which may further impact market sentiment.

However, despite all these potential challenges, the S&P 500 has shown resilience. In January, it experienced a strong rally, and even with recent bad news reports reflecting increased Fed hawkishness, it has managed to withstand the pressure. This stability is reflected in the fact that the S&P 500's 200-day moving average has remained intact. This market's ability to endure additional pressure speaks volumes about its strength.

Keep an eye on key levels, including the four percent level in the ten-year Treasury yield. The yield has recently dipped below this mark, and it remains to be seen if Powell's testimony and the jobs report will push it significantly higher.

So, brace yourselves for a week full of excitement and anticipation as we await Powell's testimony, analyze economic data, and keep a close watch on market trends. The stage is set, and the next move is just around the corner.