Stocks soared this afternoon as bulls got one last rally in before tomorrow’s big speech from Fed Chairman Jerome Powell. At 10 am EST, Powell is expected to deliver a hawkish message to investors from the Fed’s symposium in Jackson Hole, Wyoming.
Arguably bearish economic data was released this morning (weekly jobless claims and a Q2 GDP revision) but that did little to knock bulls off their game. Hawkish remarks from top economists and Fed officials were unable to keep bulls down, either.
St. Louis Fed President (and the Fed’s biggest hawk) James Bullard said that getting inflation down to 2% should be the Fed’s top priority.
“I mean with an eight handle on CPI, I think we’d be happy now to get going in the right direction. There will be a debate at some point about how long do you want to linger above 2%, and what do you have to do to get it down and actually hit the target. And I think that’s an important debate, but that’s out there in the future,” Bullard said.
″It’s getting and moving in the right direction. Let’s get it toward 2%.”
Bullard continued, adding that Wall Street should expect inflation to remain “higher for longer.” He even went so far as to say that it’s “underpriced in markets today.”
Talk about a hawkish (thus bearish) series of comments. Bulls didn’t care, though, and sent the market screaming higher this afternoon anyway.
Pimco portfolio manager Tony Crescenzi agreed with Bullard, saying that the federal funds rate needs to jump above the rate of inflation to actually bring inflation lower. Right now, the fed funds rate sits at just 2.5%. The July Consumer Price Index (CPI) clocked in at 8.5%.
“One quarter won’t do it. It will take several quarters or more,” Crescenzi said.
While we probably won’t see the Fed raise rates another 6%, Crescenzi’s remarks bring into perspective just how much of a struggle it could be for the Fed to tame inflation, even with an economic slowdown underway.
That’s why Wall Street still expects hawkish comments from Powell tomorrow morning.
And, if Powell delivers for bears, NRG Energy, Inc. (NYSE: NRG) should plummet despite today’s strong performance. The stock set a lower high relative to its May highs last week before closing below the 10-day moving average several days ago.
The stock also broke its bullish trend (yellow trendline). Plus, the stochastic indicator suggests that NRG has plenty of room to fall, too.
For those reasons, it might make sense to take NRG short with a trade trigger of $41.45, below yesterday’s low, as the general market awaits Powell’s speech tomorrow morning.
