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Markets react to Fed Chair Powell's comments

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  • Jerome Powell
    American banker
  • George Ball
    American diplomat (1909-1994)

Brett Ewing, chief market strategist at First Franklin and George Ball, chairman at Sanders Morris Harris, talks about Federal Reserve Chairman Jay Powell's decision to double tapers and signal three coming rate hikes in 2022.

Video Transcript

EMILY MCCORMICK: Welcome back to Yahoo Finance Live. I'm Emily McCormick in for Seana Smith and here with Adam Shapiro. And our panel joins us now to break down the trading action today in the wake of this afternoon's Fed decision. Brett Ewing is First Franklin chief market strategist, and George Ball is chairman of Sanders Morris Harris.

But before we turn to our panel, want to get one last check of the markets heading into the closing bell. And taking a look here, we do see green across the screen. Stocks did move higher during the press conference of Fed chair Jerome Powell. And now we do have the closing bell on the New York Stock Exchange.

[BELL RINGING]

[MUSIC PLAYING]

ADAM SHAPIRO: Ho, ho, ho. Unleash the Santa Claus rally. Here's where we stand at the closing bell after the FOMC statement. We've got the Dow up more than 1% barely, up 382 points. S&P 500 is up more than 1 and 1/2 percent. We'll settle it around 75 points into the grain. And the NASDAQ is going to be up roughly 327 points to end the day up more than 2%.

Let's get to our guests to talk about what we're witnessing here. And let me start with you, Brett. You know, given what the chair said and the market price this end, is there something you see in the next couple of months that could throw a wrench into what investors are expecting? Or are we going to see the bull market continue into the first quarter?

BRETT EWING: Look, I think that this market is positioned now that we've got this FOMC meeting out of the way. I think the melt up is going to continue into the first quarter. It's a risk-on environment right here. We've had a massive correction in equities beneath the surface. Many people don't realize the carnage out there.

In the NASDAQ, for example, 25% of the equities in that index are down over 50%. And 60% of the NASDAQ or stocks are down over 20%. In addition, you've got the Russell down over 11%. We've had a big correction in equities. It's a stock pickers environment going into the end of the year.

EMILY MCCORMICK: George, I want to kick this next question over to you here and pick up where we just left off because the NASDAQ was the big outperformer during today's session. Tech and growth stock valuations are the one supposed to be hit hardest by higher rates next year. And the dot plot did show potentially three rate hikes in 2022. Why do you think we saw this rally in tech stocks today?

GEORGE BALL: It was a exhale rally. Last couple of days, the market has been, are things going to be tightened more than they were. What happened today was pretty well priced into the market. And so there was an exhale of relief. The market popped up.

I don't think that what the Fed announced today will have any great impact on prices going into the future It was largely as anticipated. But as Brett said, the market is basically primed to be stronger over the next several months. And I think may be paradoxically extremely strong between now and the end of the year.

ADAM SHAPIRO: So George, just to follow up, because the Fed chair did say they could-- they won't, but they could-- raise interest rates before they finish the taper. Although he then said he doesn't see that happening. But should people who might be buying in to this market right now be concerned that, you know, come March at the end of the taper, we could have liftoff, and they could do it earlier.

GEORGE BALL: They certainly could. And you're quite right, Adam, in saying the market looks ahead something like six months. What people expect to happen six months from now is the big determinant of prices going forward. Investors and speculators alike don't think that the Fed will be more hawkish or tighten more than they announced or said they may plan to do today.

And that, I think, therefore less investors and then speculators also, as I said, look ahead to corporate earnings and the economy is the big driver of prices over the next several months. And that is a positive harbinger for upward prices.

EMILY MCCORMICK: Brett, how certain do you think the Fed's outlook is in terms of getting potentially those three interest rate hikes next year? Because in terms of the composition of the FOMC, four members of that forecast of that dot plot this afternoon won't be voting for policy next year. So how do you see that impacting what we could see in terms of the path forward for monetary policy?

BRETT EWING: Look, I think today's meeting was a very strong meeting. I think it was the best one of 2021 for the Federal Reserve. I like the consensus that they had on board. But they were very successful. Yes, they gave the market pretty much what we were expecting with the speed up on taper and the three hikes coming in 2022.

But they also added in this level of flexibility, talking about maximum employment. And it deals with a number of factors out there. There's not just one thing, not one number they're going to look at. I think that gives a lot of flexibility to the Fed. They are so successful in this meeting to be able to price in three rate hikes and to speed up a taper. It's very unusual.

Look, I'm a huge fan of Powell pivots. Every time Powell has done a major pivot, the market has been up substantially 6 to 12 months out. It shows the market that the Fed chair has humility and can recognize when they need to take a different course. And the market really has a lot of respect for that.

ADAM SHAPIRO: George, do you agree with that? Do you enjoy the Powell pivots?

GEORGE BALL: Well, I hate to just be a follower and say, yes I agree. But what Brett said is entirely right. The new voting members of the FOMC, by the way, are likely to be very much on board with what was done today. So I don't think the probability of a forced pivot away from what was announced today is at all high. And there is further a disinclination to believe that anything more than two or three rate hikes are apt to occur in 2022.

That's still a very benign interest rate market, and it is not going to reduce the lure of stocks as maybe there is no alternative.

EMILY MCCORMICK: Brett, one of the things that Fed Chair Powell mentioned during the press conference was that maximum employment is admittedly something that the FOMC has to make a judgment call about because there are a broad range of indicators that they look at that front. I'm wondering, as you take a look at the incoming data and how the Fed has been assessing this so far, how close do you think the Fed believes the economy to be to that maximum employment mark?

GEORGE BALL: Yeah, if I could jump in front of Brent this one time, I think the Fed is very confident that unemployment is going to be near optimal very soon. The problem in the main is there are not enough workers. There are more jobs than there are workers, and that paradox is, I think, a very strong influence on the Fed and makes it very comfortable saying, we will be at or near a perfect, if there is such a thing, unemployment rate in the near future.

The labor participation rate is low. It's inching up, but there are more jobs than workers, and that's very good from the Fed's standpoint. It gives them flexibility.

EMILY MCCORMICK: And Brett, what is your view on this perspective?

BRETT EWING: Look, I think the Fed is very confident that the labor market is going to continue to tighten as we move into the spring. You know, I know there's different variables, whether it's COVID concerns or what have you, but every indication I'm seeing right now in the labor market is strength and improvement. And I think the labor participation rate is going to continue to improve as we move into the second quarter.

EMILY MCCORMICK: All right. We want to thank our panel for their time this afternoon. Brett Ewing is First Franklin chief market strategist, and George Ball is chairman of Sanders Morris Harris.

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