Jerome Powell gave the market what it wanted on Wednesday as he hinted that there are signs of economic slowing and that the Fed will consider future rate hikes on a meeting-by-meeting basis. The Fed will consider new data as it is released and is no longer signaling the certainty of a 0.5% hike in September. The market is still expecting more hikes, but it likes the Fed pivot at this point, and that is creating confidence that the market may have already hit the lows.
The issue now is whether the market can build on the big Fed move. So far, in 2022, that has not occurred. In 2022 the S&P 500 is up 1.6% on average on the day of the Fed announcement but is down 1.5% the next day and is slightly negative five days later.
Conditions are never the same, and there are better technical conditions now, but there are plenty of headwinds, including quantitative tightening and negative seasonality.
Second-quarter GDP data will be released Thursday morning, and that is going to trigger more discussion about a recession. The Atlanta Fed model predicts negative GDP, which would be two quarters of decline and also trigger one definition of recession.
Powell Wednesday commented that the economy is currently not in a recession and that strength in employment and other areas suggests that there will not be one at this time.
The entire debate isn't particularly helpful as it focuses on a precise definition of a recession that doesn't exist. We can still have significant economic slowing, and that will have a negative impact even if it doesn't fit some exact definition that someone has created.
Overall the bulls have the edge, and we will see if they can build on the strength. Apple (AAPL) reports Thursday night and will garner much attention, but so far, the reaction to earnings has been generally good. Meta (META) put up poor numbers last night after the bell, but all it has done is give back Wednesday's gains. Bad news has already been discounted to a large extent.