Powell Punches, Stock Market Prices Fall Off Cliff

The punch from Powell was heard throughout the financial world on Wednesday, and the stock market stepped off a cliff.

The “ka-pow” sound ringing through the ears of traders was the voice of Federal Reserve (Fed) Chairman Jerome Powell delivering the next blow from benchmark interest rate hikes.

The federal reserve fund interest rate is up another 75 basis points – the third consecutive rate hike at that level, and the fifth jump this year.

Powell joined fellow central bankers at the Federal Open Market Committee (FOMC) meeting and amplified plans to continue raising rates until U.S. inflation is at acceptable levels.

Powell’s punch quickly ends market grind higher

After grinding higher through the morning Wednesday, the stock market turned herky-jerky through the afternoon – up one minute and down the next – before collapsing into the close.

In the market today, the Dow closed at 30,188.78 points to fall 1.70% (dropping 522.45 points on the day). The Nasdaq dropped to 11,220.19 points for a 1.79% tumble while the S&P 500 crumbled 1.71% to 3,789.93 points.

“On a day like this you get the flush down, the rally, then another flush,” said John Carter, Founder of Simpler Trading. “Never a dull moment. It’s interesting.”

John exercised caution throughout the day as he joined members of the Simpler Trading online community to watch the violent action across the stock market.

“Powell certainly didn’t do any favors to the market,” John said.

And the chairman didn’t mince words about Fed actions today and in the future.

“We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective,” Powell said.

The Fed has stood fast in its aggressive resolve to lower core inflation down to 2% annually (recent economic data shows core inflation at more than three times the Fed acceptable level).

The FOMC raised the target range for the federal funds rate by 3/4 percentage point (75 basis points), bringing the target range to 3 to 3.25 percent as of Wednesday.

“We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy,” Powell stated. “With today’s action, we have raised interest rates by 3 percentage points this year.”

The Fed will continue plans to lower its balance sheet and bring price stability under control.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy.”

‘Violent consolidation’ ahead for traders, stock market

Traders can expect more price action like today as the stock market digests and moves based on Fed actions today.

“I think violent consolidation – trading violently in a range – is here for the foreseeable future,” John said.

In the last five minutes of the midweek session, the Dow dropped from 393 down to 522 down for the day.

The S&P 500 is “within spitting distance” of its June low of 3,674.84, John pointed out.

John doesn’t foresee a trading plan that incorporates executing long-term trades before future big events.

“There’s no reason to take on that kind of risk because there’s going to be plenty of time to do something after the fact,” said John.

He plans to wait for market moves to happen and then target a high-probability moment in time to take advantage of what the market delivers. This has been his recent strategy leading to consistent gains whether upcoming news turns out to be bad or good.

“If we base everything on the news, it’s kind of irrelevant,” John said. “It’s more based on how people are positioned. Are too many people long or are too many people short?”

He plans to keep working just what the market provides, and avoiding risk that places trades on the wrong side of events.