30Nov11:47 amEST

Powell Talks the Hawk, Even if It's a Balk

In his testimony this morning before the Senate, Fed Chair Jay Powell gave some of the most hawkish commentary from the Central Bank about the economy and The Fed's concerns right now that we have seen in years, if not decades. Even during the Q2 inflationary head-fake in 2008, then-Chair Ben Bernanke did not outright express concerns about sustained inflation the way Powell did this morning.

In fact, you might have to go back to William McChesney Martin, then Arthur F. Burns to find prior Fed Chairs who tried "talking tough" against inflation...but without taking much action. Recall that it was only when Paul Volcker took over as Fed Chair on August 6th, 1979, that started to see actual, aggressive Fed policy change to tackle inflation...and even then, it took until August 1982 before stocks finally believed that the worst of inflation was finally behind us--A full three years later!

Thus, the lag time between if and when Powell and his Fed actually acts against inflation may be longer than many expect.

But in the meantime, the market is taking his comments this morning as a shot across the bow that The Fed has changed its tune about inflation being transitory and shifting away from growth/jobs to a heightened sensitivity of rising inflation. For us as traders, that is what matters most in the short and intermediate-term. 

As a result, we have the small caps in the Russell 2000 Index (IWM ETF) accelerating below their 200-day moving (now declining) after quietly getting rejected at that reference point yesterday. 

The main thing holding up the market right now are the crowded, multi-year mega cap tech winners like AAPL AMZN TSLA. Should they finally falter, alongside "T.I.N.A." faves, COST HD, my contrarian thesis is that December will be a shockingly poor month for markets, catching most everyone out of position--After all, how many bears truly have the onions to head into December in this type of market leaning heavily short? 

Even if he eventually balks, Powell is talking the hawk. And that is what matters the most right now for markets.

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