Stocks opened lower this morning before surging through noon. Another intraday reversal occurred as bulls took over the trading session despite soaring oil prices. West Texas Intermediate (WTI) oil futures hit $112.51 per barrel at one point this morning, notching a new 10-year high in the process.
Much of the oil spike was caused by White House Press Secretary Jen Psaki, who said in a morning interview on MSNBC that the Biden administration was “very open” to the idea of sanctioning Russian oil.
“I think it’s important for people to know is how we can maximize the impact on the squeeze on President Putin and the financial sector. We’re already seeing that. You know, the Ruble, their currency is plummeting, we’re seeing the stock market plummet there, inflation is skyrocketing,” Psaki said.
“That includes the global oil marketplace and the impact of energy prices for the American people. So, that’s one of the factors that we really look at. We’re considering it, it’s very much on the table, but we need to weigh what all of the impacts will be. We’re not trying to hurt ourselves, we’re trying to hurt President Putin and the Russian economy.”
Psaki’s remarks were slightly ironic in that her description of Russia’s problems – a plunging stock market and high inflation – are US issues as well, albeit to a far lesser extent.
And while oil marauding to new landmark highs would typically upset bulls, today, it didn’t really matter. It’s all because the market’s most important man – Fed Chairman Jerome Powell – gave investors a dovish take on the Russia/Ukraine situation.
“The implications for the US economy are highly uncertain, and we will be monitoring the situation closely,” Powell said.
“The near-term effects on the US economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”
Powell continued:
“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” he said.
“We have phased out our net asset purchases. With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”
In other words, a rate hike is still on its way, but Powell effectively killed expectations of a 50 bps rate increase, suggesting instead that a 25 bps hike was more likely. If he goes lower than that following the March FOMC meeting on the 16th, a parabolic rally would likely follow.
So as to not shift too dovish, though, Powell also said that if “inflation comes in higher or is more persistently higher than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”
That sets the stage for a critical February Consumer Price Index (CPI) reading on March 10th, just a few days before the Fed convenes. If the February CPI comes in hotter-than-expected, look out for a sharp move lower in stocks. The alternative would signal a weak rate hike from Powell, which again, should cause equities to rally.
Until then, though, the war in Ukraine rages on. And if bulls aren’t careful, they might get caught “bag-holding” long positions as new sanctions against Russia rock US stocks.
