Michael P. Reinking, CFA
Sr. Market Strategist

Yesterday US equity markets sold off during Fed Chair Powell’s press conference ending at session lows with the S&P 500 closing at ~4,400 down about 1%. The central bank left rates unchanged but signaled additional tightening may be appropriate as widely expected. The Summary of Economic projections were viewed as hawkish with 50bps of rate cuts taken out of projections for next year while most were looking for only 1. IMHO the overarching message did not really shift very much yesterday. Chair Powell did strike a balanced tone highlighting the need to move “carefully” going forward. However, the update to the SEP and continued resilient economic data drove the higher for longer stake deeper into the ground. Check out our full Fed Recap if you missed it. Yesterday yields moved higher closing at new cycle highs which added to the equity market weakness.

Overnight investors not only had to digest the Fed messaging there were also a slew of other central bank rate decisions with a couple surprises mixed in. Asian markets took their cue from the US weakness with most Asian indices ending off >1%. European indices also opened lower and extended to the downside as some of that central bank commentary began to flow in which pulled S&P futures lower. Ahead of the open there was another round of not particularly Fed friendly data with initial and continuing claims falling to levels not seen since January. Additionally, the Philly Fed index, which somewhat surprisingly broke a string of 11 straight months in negative territory last month, fell sharply to -13.5 from 12 driven by a falloff in new orders. It was the pricing components that were most concerning. Prices received ticked up modestly but there was a big jump in the prices paid component with 26% of companies reporting an increase in input costs. This not only has implications from an inflation perspective, but it also highlights a theme that is becoming more prominent pointing to margin compression.