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Mr. Powell Has Set The Price

Eric Parnell, CFA profile picture
Eric Parnell, CFA


  • The uptrend in stocks remains intact despite recent weakness.
  • Economic fundamentals remain poor despite the recent employment report.
  • The disconnect between stock prices and underlying fundamentals.
  • An alternative lens to inform our stock allocations.
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No holding back. The U.S. Federal Reserve completed its latest Open Market Committee meeting on Wednesday. Virtually everything Chair Powell stated during his post-meeting press conference was widely expected and already known. This included the Fed’s explicit indifference to high asset prices. The stock bubble green light is officially lit amid the worst economic backdrop in nearly a century. What should we reasonably expect from here?

Stocks on fire. The U.S. stock market remains on fire. The S&P 500 had rallied nearly +50% since the market lows on March 23 through the start of this week. This included a +17% advance over the past three weeks since mid-May. These are blazing hot returns, to be certain.

Of course, being on fire is not necessarily a good thing. Over the last three trading days through Thursday’s close, the S&P 500 has fallen back by more than -7.14%. This included a -5.89% plunge on Thursday alone to close at 3002.

Hand-wringing? The widespread hand-wringing across financial media during the trading day on Thursday was notable. Why? Consider what was taking place at face value. Sure, anytime the S&P 500 falls by nearly -6% in a trading day is notable. But consider what had taken place in the market leading up to Thursday’s pullback, which is shown in the chart below.

First, the S&P 500 had risen in nine out of the previous eleven trading days and thirteen out of the previous seventeen trading days since bottoming at 2766 less than one month ago on May 14. In other words, the S&P is still higher by nearly +9% in less than a month even after Thursday’s sharp correction.

Next, the S&P 500 had been grinding at or above the top bound of its Bollinger Bands for each of the past fifteen trading days through

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This article was written by

Eric Parnell, CFA profile picture
Chief Market Strategist, Great Valley Advisor Group and Assistant Professor of Business and Economics, Ursinus College

Analyst’s Disclosure: I am/we are long TLT, TIP, PHYS, SH, RWM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long selected individual stocks as part of a broad asset allocation strategy. Disclosure: This article is for information purposes only. There are risks involved with investing including loss of principal. Gerring Capital Partners and Global Macro Research makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Gerring Capital Partners and Global Macro Research will be met.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (41)

Thanks again for the article and information.
Eric Parnell, CFA profile picture
Thanks Luck of the Irish!
Since Volcker the Fed chairs are all the same. Ignore actual inflation, print money and pump asset prices. It is a completely broken institution and neither political party will dare try to fix it.
Each political party will use it @dstb .
how about going the whole hog. If trillions of pounds can be added to the national debt and shovelled into the private sector economy by clicking a mouse on a computer screen, then why not abolish taxation and keep on clicking that mouse again and again ?
That is coming too @henry133 .
AZalewski profile picture
Speaking of Fed ammo and using bonds as a predictive instrument, I found this article from Jan:


"As part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II.

From 1942 until 1951, the Fed capped yields on Treasury securities—first on short-term bills and later on longer-term bonds—to help finance war spending and the recovery.

Here’s how it might work. If the Fed cut rates to zero and concluded it was likely to hold rates at that level for at least two years, it could enhance this commitment by capping yields on every Treasury security that matures before January 2022."
Watch out for a wall of money @AZalewski coming your way.
@AZalewski - agreed, that is exactly the plan. Fed will let whatever inflation comes about to run hot if needed while capping rates
alan shapiro profile picture
If I were to take the BLS, or Jay Powell at their word (which I don't), I would still recall that it's commonplace for downward revisions of 10%, and sometimes far more. Can't help but feel that the May report was nothing more than misleading. Stay safe Eric!
Eric Parnell, CFA profile picture
Hi Alan - Thanks for your comment and great points as always. I hope you are doing well! Eric
Love the title. The content, not so much.

"Pricing in risk" is based on your opinion of the future. Opinions are sharply bifurcated lately.
Eric Parnell, CFA profile picture
Hi JohnP - Thanks for your comment and feedback. You are right about the wide range of opinions lately. I suspect this will continue through the summer. Thanks again!
Buyandhold 2012 profile picture
What a droopy slinky, Eric.

So flaccid looking.

Not a good metaphor for the stock market.

I read today that the last 50 days were the best 50 days in the stock market of all time.

Faster your seatbelts. It's time for liftoff.
Eric Parnell, CFA profile picture
Hi Buyandhold 2012 - Thanks as always for your comment. I was actually working to retire the Slinky for this article and replace it with Sonny The Cuckoo Bird from Cocoa Puffs, but I was running up against copyright issues. Perhaps a untethered balloon might take its place. Nonetheless, these markets remain interesting. Thanks and hope you are well!
Put the slinky up for sale on eBay @Eric Parnell, CFA . It might bring you a profit if it can be dated.
Eric Parnell, CFA profile picture
Great idea kimbillro! With all of the inflation inducing liquidity out there, it might fetch a particularly good price! Thanks again!
Another bad sign for Markets going forward. From Advisor Perspective:

The pandemic is affecting one of the best perks of workplace retirement-savings plans: company matches to employee 401(k) contributions.


Many firms in the hard-hit hospitality and retail industries have already suspended, reduced or deferred matches, including Expedia Group Inc., Hilton Grand Vacations Inc. and Best Buy Co. Even with the recent rally in stocks, many more companies are planning or considering such a move.

As of late April, 12% of 816 companies representing 12 million workers had suspended matching contributions, according to a Willis Towers Watson survey. An additional 23% said they will or may halt them this year.

Soooo....Let’s see... fewer 401K dollars flowing into the market, and greatly reduced buybacks, and a greater likelihood that capital gains taxes will be raised after the election. What did I miss?

Oh yeah, the worst economic conditions in recent memory.

Hmmmmmm... what could possibly go wrong?
Eric Parnell, CFA profile picture
Hello motionstream - Thanks for your comment and great points here. You are right that there are so many indicators that suggest challenges for this market going forward. It will be interesting to see where the inflection point exists between the euphoric effects of monetary policy and the depressing effects of the various realities including those you have done such a good job in outlining here. In the meantime, it appears that the path of least resistance continues to be higher. Thanks again!
Nothing could go wrong @motionstream .
Sure @kimbillro — everything works, until it doesn’t.
Yuppp profile picture
Excellent article. I've been taking profits and accumulating cash recently because the market run up seemed a little artificial to me. Thought about jumping in with the huge drop yesterday on some wish list stocks but appears they all just fell back to where they were trading about 2 weeks ago (?!). My trading recently has mostly been quick in and out of calls/puts in Robinhood infested stocks, taking advantage of exuberant ignorance.
Eric Parnell, CFA profile picture
Thanks Yuppp for your comment and observations!
Could you suggest a source to learn about calls and puts? I've heard of what you're describing, but don't know how to go about it
Yuppp profile picture
@Tony Konig Tons of books on options trading out there. I really liked Understanding Options by author Michael Sincere when I got started. Teaches from a beginner level and progresses to advanced level strategies. I still go back to review with it every so often. $12.92 for a used copy on Amazon. Good luck to you.
RoseNose profile picture
Thanks @Eric Parnell, CFA for saying this all so eloquently and truthfully.
Stick with quality and hopefully value. I feel frozen in place right now with the upswing to high valuations, but they are coming back down again, but for some not enough. Some sectors are still being maligned, but I guess rightly so, so I am watching and waiting all of this with patience (I hope). Have a great weekend :)) Rose
Eric Parnell, CFA profile picture
Hi Rose - Thanks as always for your great commentary and perspectives. The market has certainly been an adventure these last few months that I suspect will continue into the summer. I hope you are doing well and thanks again! Eric
William Darusmont profile picture
Just spin the wheel and pray it doesn't come up 00!
My VXX hedge paid off yesterday - in spades!
Eric Parnell, CFA profile picture
Hi Bill - Thanks for your comment both here and on my other recent article. I appreciate your perspective and also enjoyed visiting your blog. I look forward to checking out your book once it is finished too!

Thanks again!
I love Powell's wall of money just like I liked Phil Spector's wall of sound.
Eric Parnell, CFA profile picture
Thanks kimbillro for your comments here and on my other recent article!
You are welcome sir @Eric Parnell, CFA . I don't know how you can keep producing these quality articles and charts. Good luck!
Eric Parnell, CFA profile picture
Thanks kimbillro - I appreciate it!
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