Stocks Near Records as Fed’s Powell Says Inflation Could Persist

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Principal Points

• Stocks on Wall Street sit near record highs, but uncertainty remains elevated
• Fed Chair Jerome Powell says inflation pressures could last well into 2022

What’s Moving in the Markets?

US stocks are floating near record highs after all three major equity averages closed in the green last week. While the S&P500 and the Nasdaq Composite slipped on Friday and closed lower, the Dow Jones made a fresh all-time high.

That said, all three indexes remain steady ahead of the opening bell in New York today. Futures markets point to a fairly positive open for stocks as the busiest time of the earnings season kicks off.

Against that backdrop, investors now struggle to position their portfolios as they weigh the current market environment. On the one hand, optimism has returned to the broader financial market as major companies report strong corporate earnings. The S&P500, driven by upbeat third-quarter performance from companies like Tesla, has recouped all of its September losses.

On the other hand, persistent concerns over rising global inflation have cast a shadow on the economic outlook. Moreover, stagflation fears emerged, prompted by higher energy costs and supply-chain disruption. Additionally, central banks have indicated they are preparing to increase interest rates as a way to tackle surging consumer prices.

What’s the Big Picture for Traders?

With all that affecting the projections for economic growth, the Federal Reserve came out with mixed messages on Friday. In more detail, Jerome Powell, Fed Chair, acknowledged that inflation has become a bigger problem than expected. Striking a wary tone, Mr. Powell said higher consumer prices are “likely to last longer than previously expected, likely well into next year.”

Speaking at a virtual event hosted by the central bank of South Africa, he also noted that it was too early to raise interest rates. Still, if inflation stayed persistently high, he said, “we would certainly use our tools to preserve price stability. Mr. Powell added that Fed officials will take “into account the implications of our maximum employment goal.”

It’s important to note that the Federal Reserve has been buying $120bn in assets per month. The extraordinary support was a way for the US central bank to provide stability to the financial markets. Now, Fed policymakers are preparing to slow down these purchases as soon as next month. On that note, the Fed gathers for its regular policy meeting on Nov. 2-3 to decide whether to begin the unwinding process.

What to Watch in the Markets?

Bitcoin, the largest cryptocurrency, has eased from its record high reached last week. After a spectacular run toward an all-time high of $67,000, the orange coin has retrenched about 6% and is currently hovering near $63,000.

Elsewhere in the cryptocurrency market, Ether, the second-biggest token, is keeping steady near $4,200 early on Monday. With that in mind, traders and investors will keep a close eye on the developments in the crypto industry.

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