After some modest recovery, stocks found renewed bullishness early in the week, but comments from the Fed Chair about a potential overheating of the economy sent bulls off the field and triggered a sell-off in the equity markets.
When the Fed Chair Jerome Powell commented that a stagnant labor participation rate could lead to rapid wage growth and potentially increase inflation on Tuesday, he was perhaps well informed about how the market would react to such adverse comments. Nonetheless, we witnessed a rejuvenated downturn.
Although the second iteration of the GDP figure met estimates and indicated a slowdown in Q4, the fact remained that weekly jobless claims came out at their lowest since the end of the Vietnam War! While such an aggressive labor market signals strength in the economy, it invites a measured response from policymakers and that’s driving the market crazy.
Be sure to check out our previous week’s edition here, in which investors worried about the effects of gradual monetary policy firming.