Markets Recalibrate as Powell’s Caution Sparks Doubt on Rate Cuts, Fuels Defensive Bets

Markets sold off sharply following Federal Reserve Chair Jerome Powell’s remark that “equity prices are fairly highly valued,” a statement investors interpreted as a caution against overvaluation and potential tightening of monetary policy. The S&P 500 fell 0.55% on the day, with the Nasdaq Composite dropping nearly 1% as tech stocks led declines. Powell’s comments, delivered during a speech in Rhode Island, emphasized that financial conditions remain elevated, though he clarified the Fed is not currently facing “elevated financial stability risks.” Investors, however, reacted nervously, fearing a shift in the Fed’s rate-cutting trajectory amid concerns about inflation and economic resilience Markets are selling off after the Fed’s Powell said six ... - Fortune^[1]Fed Chief Powell says stock prices appear 'fairly highly valued'^[2].

The selloff was driven by renewed uncertainty over the sustainability of recent market gains, particularly in the tech sector. Nvidia shares fell 2.8% after a $100 billion investment in OpenAI sparked skepticism about circular financing and energy constraints for AI expansion. Analysts at Deutsche Bank noted the deal raised as many questions as answers, while UBS’s Paul Donovan suggested Powell’s remarks were designed to temper investor confidence. The Nasdaq’s broader decline reflected caution, with Oracle and Amazon also posting losses as AI-driven momentum softened Markets are selling off after the Fed’s Powell said six ... - Fortune^[1]US stock market retreats after record highs as Powell warns of …^[4].

Global markets mirrored the U.S. downturn, though Asia saw gains. The STOXX Europe 600 and U.K.’s FTSE 100 fell 0.28% and 0.12%, respectively, while Japan’s Nikkei 225 rose 0.3% and China’s CSI 300 gained 1.02%. U.S. futures initially rebounded slightly, but the underlying trend pointed to continued volatility. Powell’s speech highlighted a “challenging” economic environment, with inflation risks skewed upward and labor market pressures persisting. His warning that the Fed may need to keep rates “restrictive for longer than markets anticipate” underscored the uncertainty Markets are selling off after the Fed’s Powell said six ... - Fortune^[1]Powell Speech Market Selloff - TraderInsight^[3].

Sector rotations highlighted defensive positioning. Utilities, healthcare, and consumer staples outperformed as investors sought safety, while financials faced mixed reactions. Bond yields surged, with the 2-year Treasury yield spiking as traders priced in reduced odds of near-term rate cuts. The dollar strengthened, adding pressure to commodities and emerging markets. TraderInsight noted the market’s “recalibration” as traders adjusted to a more cautious Fed stance, with defensive sectors like XLV (healthcare) and XLP (consumer staples) maintaining relative strength Powell Speech Market Selloff - TraderInsight^[3].

Looking ahead, markets are bracing for Friday’s release of the Fed’s preferred inflation gauge, the PCE index, which could influence expectations for rate cuts. Powell’s comments tempered optimism about aggressive easing, with futures markets now pricing in roughly two 25-basis-point cuts by year-end—a far cry from earlier expectations of more rapid reductions. Analysts at Goldman Sachs and UBS remain bullish on gold, projecting prices could reach $4,000 per ounce by mid-2026, reflecting ongoing flight to safety amid policy uncertainty US stock market retreats after record highs as Powell warns of …^[4].