There was a bit of a buying frenzy at the open this morning as Fed Chair Jerome Powell sounded more dovish than some had expected. His prepared remarks helped to cement the likelihood of a July interest rate cut but the buying quickly cooled as there were few solid details of what happens beyond that.
The market has typically been downright euphoric when Powell is dovish so it is a slight change of character to see an intraday reverse. The buyers have shown up again after the indices broke below the morning lows but the market seems to be pricing in the dovish Fed and is not moving as fast.
Breadth is still running very good with more than two stocks up for each one that is down. New 12-month highs have expanded to over 500 which is a function of the indices hitting new highs. Small caps are still lagging but did bounce back after going negative.
Chairman Powell is appearing Thursday in front of the Senate so we will likely to see a little more market reaction to his comments then but the next issue is earnings. The banks kick things off and it will be instructive to see what they have to say about the strength of the economy. The reaction to earnings will be colored by how they may impact what the Fed will do next.
I sold down some positions into the early strength and am looking for some new buys. If a dovish Powell doesn't produce sustained buying then maybe we are in for a period of consolidation but we will see how we close. When the market stops celebrating Fed dovishness it will be a problem but that isn't the situation yet.