Stocks seemed to be in for a rough trading session on Tuesday. Then Jerome Powell saved the day.
Major indexes all fell about 1% in the first hour of trading, with the sell-off looking like it would last through the day before a ferocious turnaround kicked off in the afternoon. The declines earlier in the session were triggered by new US-China trade tensions, which escalated on Tuesday after China said it would impose sanctions on US subsidiaries of a major Korean shipping firm.
The big jump was sparked by comments from the Fed Chair, which were interpreted as a dovish nod toward rate cuts, even as Powell didn’t specifically mention monetary policy in his remarks.
Here’s where major market indexes stood as of 2:50 pm ET Tuesday:
Speaking before the National Association for Business Economics in Philadelphia on Tuesday, Powell got investors excited about rate cuts again after he said the labor market continues to show signs of weakening.
The comments stopped the bleeding for stocks in what would have been their second down day in the last three sessions.
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“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said. “While official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue their downward trajectories.”
Data from the CME Group shows investors are pricing in two more 25-basis-point rate cuts by the end of 2025, and a third by the Fed’s March 2026 meeting. Odds of a cut at the Fed’s October 29 meeting are now at 96%.
JPMorgan’s Chief Economist Michael Feroli also said the comments all but confirmed a rate cut at the next meeting.
“While there was little doubt the FOMC was angled to cut rates at its next meeting, today’s remarks were strong confirmation of that expectation,” Feroli said in a client note Tuesday.
David Russell, Global Head of Market Strategy at TradeStation, conveyed similar sentiments, pointing out Powell’s dovish statements beyond just what he said about labor market softness.
“Jerome Powell highlighted the eventual end of quantitative tightening and noted potential liquidity issues. These comments push the narrative in a more dovish direction,” Russel said in an email. “He also suggested that tariffs aren’t causing inflation. Powell isn’t waiting to get in the holiday spirits. Christmas might come early from the Fed.”