How the markets reacted to Powell’s confirmation
What will change with the confirmation of Jerome Powell at the helm of the Fed. The comment by Alberto Artoni, AcomeA sgr US Equity portfolio manager
Despite pressure from his own party, President Biden confirmed Jerome Powell's tenure for the next four years as chairman of the Federal Reserve.
Analysts therefore read in Powell's confirmation a signal of the Central Bank's newfound independence that could favor a return, albeit gradual, to less accommodative monetary policies, in light of the dynamics of growth and inflation.
The consumer price index registered an increase of 6.2% in October, a value that had not been recorded for over 30 years.
Markets reacted to Powell's appointment with higher yields on government bonds and a fall in the stock market.
However, it is interesting to note that sales were concentrated above all on the technology sector and, in particular, of stocks that are discounting very strong future growth rates, while the sectors most linked to the cycle and to the so-called "old economy" closed the session. with positive sign.
On a day that ended with -0.32% for the S&P index, representative of the market as a whole, the US bank index closed with a gain of over + 2%.
Similar to debt securities, where the value of the security falls as yields rise, some equities are particularly vulnerable to rising interest rates. Among the most at risk there are certainly the shares of many innovative companies which, however, are now at a loss and are unlikely to produce profits for several years to come.
Conversely, a value and active approach, focused on more mature companies and sectors, which already produce robust cash flows today, could benefit from a change in monetary policy.
The graph compares the trend of inflation expectations (using the 5y5y indicator which measures inflation expectations between 5 years for the next 5) with the trend of the Value management style compared to the Growth style. In the face of a recovery in inflation expectations, the Value style still has high performance potential.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/conferma-powell-fed-reazione-mercati/ on Wed, 24 Nov 2021 12:28:41 +0000.