The stock market couldn’t hold on to gains Wednesday, even after Federal Reserve Chairman Jerome Powell told lawmakers that a slower pace of interest rate hikes is possible. Markets are just too dour for the gains to have lasted.


The Dow Jones Industrial Average fell 47 points, or 0.2%, while the S&P 500 dropped 0.1%, and the Nasdaq Composite declined 0.2%. All three indexes had been in the green Wednesday, but ultimately failed to extend Tuesday’s gains. The indexes all rose more than 2% on Tuesday.


Whatever positives came out of Powell’s testimony, “it likely won’t bring enough buyers into the market to push us significantly higher,” wrote Shawn Cruz, head trading strategist at TD Ameritrade.

Powell appeared before the Senate Banking Committee around the time of the opening bell.

“We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” he said in remarks posted on the Fed’s website.


The central bank’s stance was in line with expectations for more increases to interest rates, but there was good news as well. The remarks also gave a nod to the possibility that the Fed could soon slow down the pace of rate hikes. Powell said the pace of rate increases will depend on economic data, indicating that if growth and inflation slow down, so will rate hikes.


Still, significant concerns remain. Inflation has remained elevated, causing economic growth to slow—and the Fed needs to keep raising interest rates to combat rising prices.


Adding to the angst was economist Bill Dudley, who also is the former president of the Federal Reserve Bank of New York. In an op-ed for Bloomberg, Dudley wrote that the Fed is likely to have put the economy into recession.


So for now, “for any [stock market] rally to become sustainable, we need to see Inflation peaking/Fed hawkishness peaking,” wrote Tom Essaye, founder of Sevens Report Research, before Powell’s remarks were made public.


That viewpoint is confirmed by discouraging data on investor confidence, as there still isn’t full visibility on how much economic growth will drop as interest rates rise. In fact, one gauge of individual investor confidence shows that sentiment is at its lowest level since the 2008 financial crisis, according to RBC strategists.


Indeed, markets in general reflect concern about a recession. The price of oil is down, with WTI crude falling more than 3% to about $105 a barrel after hitting a multi-month peak of $122 a few weeks ago. Copper dropped more than 2% to $3.94 a pound and is down from a multi-month high of $4.55, also hit in early June.


Consistent with the expectation for weakening demand—and falling prices—the 10-year Treasury yield was down to 3.15% from a 3.3% close Tuesday, as investors buy up the bond. That isn’t a surprise as the Fed is actively trying to lower inflation and the yield had already risen by more than twofold this year.


Overall, “Oil and 10 year yields are both moving lower …all of which is consistent with a slowing growth outlook,” wrote Dennis Debusschere, founder of 22V Research.



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