From the Wall Street Journal’s “Stock Futures Slip Ahead of Powell’s Testimony” posted early Tuesday:
Mr. Powell plans to reiterate in a hearing before Congress that the central bank will continue providing support to the economy through loose monetary policy. He and Treasury Secretary Janet Yellen will begin two days of testimony at 12 p.m. ET. But optimism about the speed of the recovery and the possibility of rising inflation have left investors skeptical about the Fed’s plans for interest rates and bond purchases.
Investors are also reassessing their expectations for a fast and widespread global recovery, which had led to rising bets earlier this year that companies sensitive to an economic recovery would benefit. Rising Covid-19 cases in Europe and recent extensions to lockdowns in Germany, France and Italy are also weighing on sentiment.
“It feels like the reflation theme is running into a few roadblocks,” said Sebastian Mackay, a multiasset fund manager at Invesco. “We are probably in a cyclical recovery, but we may have gotten ahead of ourselves. This is a pause for thought: how rapid is this recovery actually going to be?”
The bond market is stabilizing, with the 10-year Treasury note yield easing down for a third straight day to 1.670%, from 1.682% on Monday. Still, investors are looking to see if Mr. Powell will shift his stance on the recent rise in bond yields and whether the Fed will consider slowing bond purchases to tamp down inflation.
“The major story is still what’s happening in bond yields,” said Edward Park, chief investment officer at Brooks Macdonald. “Inflation expectations have markedly risen, so the big question in the market has been: what will the Fed do?”
My take: Apple’s day will come.