US Equities markets slumped over 1% lower on Tuesday due to hawkish comments from FOMC Chairman Powell and a delayed infrastructure bill. Powell’s statements were released pre-market on Tuesday, and the markets initially rallied in the opening part of the session. However, after Powell’s live testimony shifted into the Q&A segment, markets began to steadily selloff. In principle, this appears to be due to Powell’s confirmation that the FOMC would indeed continue its projected pace of raising interest rates in order to contain excess inflation. However, this reaction should have been expected once consumer confidence and other major economic data came in much stronger than expected, making it almost certain before Powell’s testimony before Congress that the FOMC would indeed feel inclined to stay on pace for steady rate hikes.
In addition to Powell’s statements, it was announced by some Congressional leaders that the proposed infrastructure bill would not be implemented in 2018. This is a very large delay, and signals that a large potential source of capital inflows to US companies who would be involved in rebuilding the country’s public works now needs to be written off for the year, and thus lead the price of stocks in companies such as materials producers lower. Also, this was seen by some as evidence of a slowing of legislative changes proposed by the Trump administration. All things considered, we can expect the equities markets to continue to face headwinds as a result of these developments going forward, so a repeat of the persistent uptrend we saw in 2017 is now no longer likely, although a major selloff for fundamental reasons is even more unlikely. We can expect a larger degree of volatility and range bound trading, but still with a bullish inclination overall.