Powell Moonshots Tech Stocks From Wyoming
US Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium today was an admission that he has allowed the market to box him in.
The Fed didn’t do enough to tame inflation since 2020, and now they are on the brink of surrendering the inflation fight and cutting rates when core inflation is running closer to 3%.
What does this mean?
Tech stocks have lifted off. Google is up 4% intraday at the time of this writing.
In the short-term, I expect tech stocks to carry the momentum all the way to the September Fed meeting, which is the 2nd half of September.
Powell could have said nothing and wasn’t in Wyoming to comment on current policy, but like many times before, he couldn’t help himself.
After all the political criticism, I guess he felt it was necessary to address those hefty insults by the administration.
He could have easily made this a farewell party and enjoyed a bowl of Doritos and a glass of punch, but he didn’t.
He chose to hold his feet close to the fire when his tenure caused inflation to run riot in the United States.
Instead of clamping down on inflation, he has now set up the next Fed Chair to enter a tough situation with slowing employment and a worsening inflation problem, along with a catastrophic federal debt problem.
The $37 trillion and more of federal debt doesn’t get talked about enough by the Fed, even though it is indirectly related to setting monetary policy.
Powell delivered a dovish message that signaled a potential interest rate cut and more, and who knows, maybe he will surprise the market a give us a half pointer.
This tone had a significant impact on financial markets, particularly boosting tech stocks and reinforcing their short-term momentum.
Tech stocks, particularly those of growth-oriented companies, are highly sensitive to interest rate expectations.
Lower interest rates reduce the discount rate applied to future cash flows, increasing the present value of companies with high growth potential, such as those in the technology sector.
Many tech firms, including giants like Nvidia, Apple, and smaller high-growth companies, rely on future earnings projections rather than current profitability.
A dovish Fed policy enhances the attractiveness of these stocks by lowering the cost of capital and improving the net present value of their anticipated earnings.
The dovish tone of Powell’s speech also strengthened short-term momentum in tech stocks by reinforcing positive investor sentiment that the coast is clear for the short-term.
Go risk off heading into next month and lose your shirt!
Powell’s dovish comments provided a catalyst for a relief rally, as traders poured in from the sidelines.
The speech alleviated concerns about restrictive monetary policy, reinforcing short-term momentum in tech stocks. However, ongoing economic uncertainties, including tariffs and labor market dynamics, suggest that investors should remain vigilant.
I removed my Uber shorts that I put on 2 days ago. Who would have known that Powell would give the green light to tech stocks?
I initiated new longs in Nvidia and Palantir today, which dovetails with my other longs in Microsoft, Apple, and Amazon.
I have 5 bullish positions going into next month’s expiration. Thank you, Jerome Powell.
