(Bloomberg Opinion) — Traders are used to a bumpy ride whenever Jerome Powell speaks. But when Powell speaks at the same time that Janet Yellen speaks before Congress about the health of the banking industry, the turmoil can become overwhelming.
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That’s what happened Wednesday afternoon when the back half of the Federal Reserve Chairman’s press conference coincided with the Treasury secretary’s appearance before a Senate subcommittee. The S&P 500 fell, rose, flattened again, then plunged again as traders tried to synthesize commentary on the health of the economy, the path of rates, the state of the banks and how far the government will go to protect the depositors.
It is rare for two people of such stature to speak at the same time, worse when they project messages that the merchants interpret as opposite. Shortly after hearing what they thought Powell was tipping to broader protection for depositors should financial stress spread, Yellen appeared on the broadcast to shoot down hope. The S&P 500 erased an earlier gain of 0.9%, marking the sixth time this year that an intraday rally of that size has been reversed.
“It’s surprising that Yellen and Powell have given mixed messages on bank deposits at the same time,” said Steve Chiavarone, senior portfolio manager and director of multi-asset solutions at Federated Hermes. “Powell essentially said all deposits are safe, Yellen said, ‘Keep my beer.’ You would have thought they would have coordinated.”
When asked about a broad increase in share insurance, Yellen said, “It’s not something we’ve looked at. It’s not something we’re considering.” That happened around 3 p.m. in New York, after Powell said the banking system was sound. However, some argued that his insistence that the Fed would continue to raise rates more than expected if he saw the need to do so also helped push stocks lower.
Traders noted that bank stocks took the brunt of the pain after Yellen’s comments. The SPDR S&P Bank ETF (ticker KRE), which tracks regional banks in the US, fell 5.7%.
“His comments clearly hurt bank stocks, but his comments roughly matched Powell’s comments that they will continue to do whatever it takes to fight inflation, including raising rates more than anticipated,” said Steve Sosnick, Chief Strategist at Interactive Brokers. “It’s hard to untangle them.”
In the days leading up to the Federal Open Market Committee’s statement, investors disagreed on how the central bank was going to move, with economists at some of the biggest banks saying it was not going to raise rates at all. But the Fed raised for the ninth straight meeting and said there could be more hikes to come.
The FOMC voted unanimously to raise its target for the federal funds rate by a quarter of a percentage point to a range of 4.75% to 5%, the highest since September 2007.
Read more: Powell stresses commitment to cool prices as Fed raises rates
But both Powell and Yellen are trying to thread the needle between wreaking more havoc and saying the government will cover any private risk, says Mike Bailey, director of research at FBB Capital Partners.
“Unfortunately, investors were walking on eggshells prior to the Powell and Yellen comments and the bereavement messages are leaving investors in a state of confusion, as seen in the S&P slide,” Bailey said.
Pinpointing exactly what moves the market on a minute-by-minute basis is an inexact science at best. To do so when two of the most important people in finance are dueling currents is an undertaking that is in many respects doomed to futility. In the end, Wednesday’s verdict on Powell and Yellen’s stereo direction was negative. The S&P 500 fell 1.7% in its worst drop in two weeks.
On the other hand, it is still available for the week.
–With assistance from Lu Wang and Emily Graffeo.
(Adds a box after the fourth paragraph. Corrected an earlier version of this story.)
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