Powell Finds Trust With Stock Investors That He Lost With Trump

(Bloomberg) -- Donald Trump may have lost faith in Jerome Powell but the stock market hasn’t.

Minutes after being ridiculed by the president as having “no guts” despite unveiling a second interest rate cut, the Fed chief squelched a mini revolt in markets, telling by investors he wasn’t abandoning the economy to itself.

Stocks fell as much as 1% after updated Fed forecasts showed officials split over the need for further cuts this year, spooking equity investors convinced the Fed would ease at least once more and drawing the rebuke from Trump. Powell sparked the biggest rebound in six weeks when he said the economy needed only moderate easing and that the Fed is “prepared to be aggressive” if growth were to falter.

“He had a good day,” Kirk Hartman, chief investment officer of Wells Fargo Asset Management, said on Bloomberg TV. “The Fed chairman signaled that the Fed was going to be very supportive of the markets, which is what the markets wanted to hear.”

It was a welcome performance for stock bulls who haven’t always been receptive of Powell’s message. The S&P 500 had finished lower after 10 of the prior 12 Fed meetings, and looked on its way to an 11th slide before Powell left the door open to “a more extensive sequences of cuts” if needed.

For bulls convinced the economy won’t need more juice form the Fed, Powell’s comments only reinforced the message from recent data. Home construction, consumer sentiment, retail data and jobless claims have all exceeded expectations, while the labor market remains tight, indicating that recession signals emanating from the bond market may be misfiring.

“The data in the United States economy has been better over the last couple of weeks,” said Ed Keon, chief investment strategist at QMA, the $128 billion quantitative arm of PGIM. “I would much rather have a strong economy that doesn’t need assistance as opposed to a weak economy that has to be propped up by the Fed.”

Performance among the S&P 500’s sectors reflected the growing confidence in the economy. As the S&P 500 plunged on the initial hawkish read, financial stocks rallied and defensive stocks like consumer staples and utilities held in. Technology and economically-sensitive industrials stocks then led the rebound as investors grew more confident the Fed was ready to act if any cracks in the economy widened.

“The economy is steady as a rock and as long as that remains the case the odds of a third rate cut this year start to shrink dramatically,” said Chris Rupkey, the chief financial economist at MUFG Union Bank in New York. “They are done for now unless the trade war uncertainty raises its ugly head again.”

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