As a stock trader I take what Powell says ver seriously. Powell offered a sober reminder to investors today, acknowledging that equity prices appear “fairly highly valued” even as Wall Street continues to notch fresh record highs. Speaking in Providence, Rhode Island, Powell emphasized that the Fed is closely monitoring financial conditions as it weighs the effects of its recent policy moves.
The comments come less than a week after the Federal Open Market Committee (FOMC) delivered a quarter-point rate cut, fueling a powerful rally across stocks and risk assets. Markets had been anticipating the move, with investors betting that easing monetary policy would continue to support corporate earnings and economic growth. Major indexes have since set a string of new highs as traders price in expectations for additional cuts later this year.
Powell’s acknowledgement of stretched valuations sparked an immediate reaction, sending the major averages into the red during afternoon trading. Still, he tempered concerns by stressing that the current environment does not constitute a “time of elevated financial stability risks.”
The Fed chair also noted how markets often “listen to us and follow and they make an estimation of where they think rates are going. So they’ll price things in,” pointing to the way mortgage rates and other borrowing costs move in anticipation of Fed policy.
With equities trading near all-time highs and the Fed signaling that more cuts could come if economic data softens, markets may remain volatile as traders weigh the promise of easier policy against the risks of inflated valuations. I'm looking to take advantage this weakness to protect the gains that we have seen.