Ed Yardeni says that Fed Chair Powell is ready to play the spoiler

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The rise of AI has left many investors—or maybe we should call them speculators—desperately searching for tech stocks that will allow them to share in Wall Street’s modern-day gold rush.
It’s a fear of missing out dynamic that typically coincides with market bubbles, although the debate over whether we’re currently in a bubble is still underway.
Now, Nvidia’s giant AI conference, GTC 2024, could add fuel to the FOMO fire this week, drawing in even more money to AI-linked stocks, according to Ed Yardeni of Yardeni Research.
“We could see a scenario in which FOMO buyers jump into Nvidia and other tech stocks during Nvidia CEO Jensen Huang’s talk from 4-6 pm EST on Monday,” the veteran economist and Wall Street strategist wrote in a Sunday note to clients, calling the conference “Nvidia’s three-day AI lovefest for developers.”But investors hoping for another AI-induced stock market rally should be cautious.
The Federal Reserve Open Market Committee (FOMC) meets Tuesday and Wednesday to discuss monetary policy—and Chair Jerome Powell could throw cold water on stocks’ rally in his follow up press conference.
“Bearish traders might take the market down Tuesday afternoon,” Yardeni warned, adding that fear could spread if the Fed chair indicates a “more hawkish” outlook.
For roughly two years now, Fed officials have been attempting to tame inflation using interest rate hikes as their main weapon.
The tactic has increased borrowing costs for businesses and consumers nationwide, but it’s also been pretty effective, reducing the annual rate of inflation from its June 2022 9.1% high to just 3.2% in February.
Powell said earlier this month in his semiannual monetary policy report to Congress that the drop in inflation has given him confidence that he’ll “likely” be able to cut rates at some point this year.
But Yardeni noted that Powell and company won’t like what they saw in February’s consumer or producer price inflation reports.
Both reports surprised economists, coming in hotter than expected and signaling the slow decline of inflation has now largely subsided.
Yardeni said that he believes this new evidence will lead Powell to be more hawkish this week.
He even argued that the Fed’s Summary of Economic Projects (SEP), a baseline estimate of Fed officials’ economic forecasts, will likely show Fed members now expect inflation to moderate at a “slower pace” and are forecasting just two, rather than three, rate cuts this year.
With higher-than-forecast interest rates set to weigh on corporate earnings, Yardeni warned that markets could be in for some near-term pain—despite the AI FOMO that will be boosted by Nvidia’s event.
“[Investors and traders] might keep selling if Powell dials back his talk about dialing back restriction,” he warned.
Yardeni noted that markets have already spent the past few weeks adjusting to the prospect of fewer interest rate cuts.
To his point, both the 10-year and 2-year Treasury yields have surged roughly 6% since March 8, to 4.34% and 4.74%, respectively.
And the iShares 20+ Year Treasury Bond ETF, which tracks Treasuries with a maturity of over 20 years, has now dropped for a record eight straight days, a sign that investors are pricing in fewer rate cuts—and thus, rising Treasury yields.
Despite the new outlook from investors for fewer rate cuts, major market indices are still in “overbought” territory, according to Yardeni, leaving them vulnerable to a correction.
“If the Fed remains in pause mode longer than expected, the stock market rally may be due for a pause as well,” he argued.
To back up his view that investors should be cautious, Yardeni featured comments from Michael Brush, a MarketWatch columnist and the publisher of the newsletter Brush Up on Stocks, who noted that insider sales trends aren’t looking great.
“Insider buying continues to remain remarkably light relative to selling, indicating a cautious view of the stock market among corporate executives and directors,” Brush said.
“Even the buying we had seen in biotech and regional banks has dried up.”

Due to the rise of AI, a lot of investors—or perhaps better described as speculators—are desperately looking for tech stocks that will enable them to partake in the current Wall Street gold rush. Though there is still disagreement over whether we are in a bubble at the moment, fear of missing out is a common phenomenon associated with market bubbles. Now, according to Ed Yardeni of Yardeni Research, Nvidia’s massive AI conference, GTC 2024, could fuel the FOMO fire this week by attracting even more capital to AI-linked stocks.

The seasoned economist and Wall Street strategist described the conference as “Nvidia’s three-day AI lovefest for developers” in a Sunday note to clients, speculating that “we could see a scenario in which FOMO buyers jump into Nvidia and other tech stocks during Nvidia CEO Jensen Huang’s talk from 4-6 pm EST on Monday.”. “.

However, investors should exercise caution if they’re hoping for another AI-induced stock market rally. At the FOMC’s Wednesday and Tuesday meetings, they will talk about monetary policy, and in his press conference afterward, Chair Jerome Powell may put a stop to the recent surge in stocks.

Yardeni cautioned that “bearish traders might take the market down Tuesday afternoon” and that “more hawkish” language from the Fed chair could cause panic.

Interest rate hikes have been the primary tool used by Fed officials to try and control inflation for the past two years or so. In June 2022, the annual rate of inflation reached a high of 9 percent. However, in February, the same tactic, which has increased borrowing costs for consumers and businesses nationwide, only managed to reduce inflation to just 3 percent. Powell expressed confidence that he will “probably” be able to lower rates at some point this year in his semiannual monetary policy report to Congress earlier this month. Powell cited the decline in inflation as his reason.

However, Yardeni pointed out that the consumer and producer price inflation reports from February won’t sit well with Powell and company. Both reports came in hotter than anticipated and indicated that the gradual decline in inflation has now mostly abated, shocking economists.

Yardeni stated that Powell will likely become more pessimistic this week as a result of this new evidence. He even contended that the Fed’s Summary of Economic Projects (SEP), which serves as a baseline estimate of the economic forecasts made by Fed officials, will probably reveal that members of the Fed now anticipate inflation to moderate at a “slower pace” and are only expecting two rate cuts this year as opposed to three.

While AI FOMO will be bolstered by Nvidia’s event, Yardeni cautioned that markets may be in for some short-term pain given that higher-than-expected interest rates are expected to weigh on corporate earnings. “If Powell backs off on his talk about dialing back restrictions, [traders and investors] might keep selling,” he cautioned.

Markets have already spent the last few weeks acclimating to the possibility of fewer interest rate reductions, according to Yardeni. To illustrate his point, since March 8, the yields on the 10-year and 2-year Treasury notes have increased by about 6% to 4 percent and 4 percent, respectively. Furthermore, investors appear to be pricing in fewer rate cuts and, consequently, rising Treasury yields, as evidenced by the iShares 20+ Year Treasury Bond ETF, which tracks bonds with maturities of more than 20 years. The ETF has now dropped for a record eight days in a row.

Major market indices remain “overbought,” according to Yardeni, making a correction possible despite the recent investor outlook for fewer rate cuts. He contended that the stock market rally might also need a pause if the Fed stays in pause mode longer than anticipated.

Michael Brush, a MarketWatch columnist and publisher of the newsletter Brush Up on Stocks, stated that insider sales trends don’t appear to be favorable, which supported Yardeni’s argument that investors should exercise caution.

“The notable lack of insider buying in comparison to selling suggests that corporate executives and directors have a cautious outlook on the stock market,” stated Brush. Even the biotech and regional bank purchases that we had previously witnessed have stopped. “.

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