Stock markets needed a reason to continue its perfectly symmetrical v-shaped rebound. It got what it needed when Fed Chair Jerome Powell endorsed a policy shift. Powell said that the cooling job market is unwelcome. So long as inflation is toward the bank’s 2.0% target, rates would fall.
U.S. treasury bond yields reacted quickly. The 1-year and 2-year T-bill yields fell. Prices for the longer maturing bonds in the TLT and IEF ETF rose. The U.S. dollar fell, especially against the yen, to $144.315. The yen’s rebound from nearly 40-year lows a few weeks ago is now a distant memory.
Powell said that inflation is on a sustainable path to 2% inflation. It had risen to nearly 7% during the Covid-19 pandemic. Today, those risks largely diminished. More worrisome is the weakening job market. The U.S. government restated job growth down by 818,000 in the last fiscal year ended in March 2024.
Income-producing stocks jumped. Banks closed above their all-time high, including JPMorgan Chase (JPM). B of A (BAC) and Citigroup (C) did not return to their yearly high. This would give investors seeking exposure to the financial sector a chance to start a position.
Bank stocks thrive when credit conditions are looser. Falling interest rates stimulate demand for car loans and mortgages. Banks would profit from net interest income and fees from lending activities.
