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Federal Reserve Chair Jerome Powell may have just killed the stock market melt-up

Brian Sozzi
Editor-at-Large

Federal Reserve Chair Jerome Powell — forever a market mover — may have just put a dagger right through the heart of the bulls that are blindly buying stocks right now at dangerously higher valuations.

Powell’s comments on Fed day may have set a short-term top in markets, explained Miller Tabak equity strategist Matt Maley on Yahoo Finance’s The First Trade.

“The market could see a breather here,” Maley added.

While the Fed lived up to expectations on Wednesday by leaving interest rates unchanged, it was Powell’s somewhat hawkish comments on inflation that could upset the bull thesis that has enveloped the market in recent weeks.

“We suspect transitory factors may be at work,” Powell told reporters after the Fed’s rate decision. The word “transitory” was viewed by traders as a sign that the Fed would not deliver the interest rate cut later this year that had been priced into stock valuations.

The Dow Jones Industrial Average fell 162 points on Wednesday following Powell’s remarks. Selling pressure persisted into Thursday, with the Dow reversing early gains to drop by 150 points by midday trading.

Investors rotated into more defensive names such as McDonald’s, Procter & Gamble, Verizon Communications and Merck.

That rotation is counter to the action for most of April, where riskier areas of the market were bid up. It was just a few days ago that Microsoft and Apple touched trillion dollar market caps again, a combination of good first quarter results and the specter of low interest rates well into 2020.

Obviously, the reduced prospect of a rate cut theoretically should dent the case to buy stocks at much higher valuations than earlier this year.

Watch that VIX Index, people.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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