Fed Chairman Jerome Powell will be continuing for the next tenure as per the White House announcement. On Monday, the Treasury Yields soared while tech stock came under pressure.
On Monday, November 22, the US stock indices gave mixed responses. The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) corrected more than 1.26% losing all gains in the early trading hours.
On the other hand, the Dow Jones Industrial Average (INDEXDJX: .DJI) ended in green at 35,619 levels. However, it lost major gains in the wee trading hours down from 300 points to only 17 points in positive. The S&P 500 (INDEXSP: .INX) also dropped 0.32% ending at 4,682 levels.
On Monday, President Joe Biden announced their nominee for the Federal Reserve chairman position. Existing Fed Chairman Jerome Powell shall continue for the next term as per the White House decision. Soon after this decision, bank stocks and Treasury yield moved higher.
Shares of Morgan Stanley (NYSE: MS) surged more than 2.5% trading at $99.32 levels. Similarly, JPMorgan Chase (NYSE: JPM) stock gained 2.13% ending at $164.13 levels.
The rise in the treasury yield, however, was enough to put some pressure on the tech stocks. The rise in bond yields usually tends to put pressure on the future earnings of the tech stock which makes it less attractive to users. Speaking to CNBC, David Waddell, chief investment strategist at Waddell and Associates said:
“I think the drivers on today’s action is more technical, short-week, rotational, dollar strength and interest rates up a little bit. I don’t know how much of the reaction today is Powell-specific, but I think Powell overall is positive.”
All Eyes on Fed and Its Monetary Policy
Last year owing to the COVID-19 pandemic, the Fed has reduced the interest rates to nearly zero. However, the inflation rates have also shot up significantly with forcing Fed to re-look into tightening its monetary policy.
The reappointment of Fed Chairman Jerome Powell has reduced concerns about switching the central bank chiefs. Greg Daco, chief US economist at Oxford Economics said:
“Continuity will be key during this potentially tricky phase of the recovery where inflation is elevated and sticky, demand growth is strong but cooling, and capital and labor supply is gradually rebounding”.
However, the major challenge ahead for the Fed would be controlling the inflation rate. For the month of October, the inflation rates surged at new highs, the highest since the 1990s. This has forced to Fed chairman to rethink his previous statement that inflation would be “transitory”. Some critics also say that the Fed has been waiting for too long to tighten the monetary policy.
The final weeks of the year usually turn out to be a strong period for Wall Street. We already have a good start to the week ahead of Thanksgiving.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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